UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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: 2-95034LA
ARMORED STORAGE INCOME INVESTORS LIMITED PARTNERSHIP
(An Arizona Limited Partnership)
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 86-0503193
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4425 N. 24th St., Ste. 225, Phoenix, Arizona 85016
- -------------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (602) 230-1655
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
-------------------------
(Title of Class)
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 in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicated 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 [ ]
As of March 1, 1999, 15,000 Limited Partnership Units were outstanding. Such
Limited Partnership Units were sold at $500 per Unit. However, no market for the
Limited Partnership Units of the Registrant exists and therefore the aggregate
market value of the Units held by non-affiliates of the Registrant is not
determinable.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Prospectus dated March 9, 1985 filed pursuant to Rule 424 (c)
under the Securities Act of 1933 as amended is incorporated by reference into
Parts I, II and III of this report pursuant to Rule 12b-23 under the Securities
Exchange Act of 1934.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Armored Storage Income Investors Limited Partnership (the "Registrant") is a
limited partnership formed on December 4, 1984 under the laws of the State of
Arizona to acquire, develop, own and operate self-storage facilities using a
minimum of mortgage indebtedness. The Registrant sold $7,500,000 in Limited
Partnership Interests to the public pursuant to a Registration Statement on Form
S-18 under the Securities Act of 1933 (Registration Statement No. 2-95034LA), as
amended. The offering commenced on March 8, 1985 and terminated on February 28,
1986.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Registrant operates in only one industry segment, the acquisition,
development, operation and holding for investment of self-storage facilities.
Information relating to the Registrant's revenues, operating profit and
identifiable assets attributable thereto for the fiscal year ended December 31,
1998 is set forth under Item 8 below.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Self-Service Storage Association (SSSA) estimates that approximately
one-half of the population relocates every three years. Urban areas are becoming
more congested, houses are getting smaller and people are requiring outside
storage space to meet their needs. Business owners, too, are feeling the crunch
as the square foot cost of office space increases. They need an affordable
alternative to using expensive office space for the storage of records and
supplies.
Self-storage is an innovation responding to the needs of the community. The
facilities owned and operated by the Registrant are designed to offer low cost,
accessible and secure storage space for business and personal use. In addition
to indoor units, special parking areas are available for convenient storage of
recreational vehicles. Computerized entry systems and on-site, live-in managers
provide an extra measure of security. The facilities of the Registrant are
designed for a comfortable architectural blend with the surrounding residential,
commercial and retail areas.
The Partnership's principal investment objectives are: (i) to provide
distributions of Cash Flow from operations; (ii) realize capital appreciation of
the Partnership's Properties; (iii) to preserve and protect the Limited
Partner's capital; and, (iv) to develop a geographically diversified investment
portfolio of self-storage properties. There can be no assurance that these
objectives will be attained.
<PAGE>
MARKETS AND COMPETITION.
The Phoenix and Albuquerque markets have one of the greatest saturations of
storage facilities per capita in the country. To meet the competition the
Registrant is, and intends to continue, taking steps to maximize efficient
operations and to differentiate its facilities from the competition.
GENERAL RISKS OF REAL ESTATE OWNERSHIP.
The Registrant's investments are subject to the risks generally incident to the
ownership of real property. These risks include the uncertainty of cash flow to
meet fixed obligations, adverse changes in national economic conditions, changes
in the relative demand for space in the locale of the facility (and thus the
relative price which can be charged), adverse local market conditions due to
changes in general or local economic conditions or neighborhood values, changes
in interest rates and in the availability, cost and terms of mortgage funds, the
financial condition of tenants and sellers of properties, changes in real estate
tax rates and other operating expenses, increased maintenance costs as a result
of the aging of facilities, governmental rules and fiscal policies including
possible proposals for rent controls, as well as acts of God, uninsured losses
and other factors.
SEASONALITY. The business of the Registrant is not generally subject to seasonal
variations.
EMPLOYEES. The Registrant has no full-time employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The registrant does not derive any revenue from foreign operations or export
sales.
ITEM 2. DESCRIPTION OF PROPERTY
The Partnership has three self-storage facilities, two of which are located in
Phoenix, Arizona and one located in Albuquerque, New Mexico.
BELL ROAD, PHOENIX, ARIZONA
The Partnership owns a three-story enclosed self-storage facility at 1025 E.
Bell Road, Phoenix, Arizona ("Bell Road"). This facility consists of
approximately 81,500 gross square feet, built on 1.5 acres of land. The storage
facility includes 807 indoor spaces, 54 safety deposit boxes, and 114 mail
boxes. The property was acquired from an affiliate of the General Partner at a
cost of $2,249,632 of which $2,049,632 was allocated for the building, and
$200,000 allocated for the land. The purchase price represented the affiliate's
cost in the land and improvements. The facility was acquired in November 1985
while still in the developmental stage and became operational in January 1986.
As of February 28, 1999, the facility had an occupancy level of 69%.
<PAGE>
63RD AVENUE AND MCDOWELL
The Partnership owns a self-storage facility at 63rd Avenue and McDowell Road in
Phoenix, Arizona ("63rd Avenue"). This facility consists of 76,325 gross square
feet of rentable space consisting of eight separate single level buildings built
on 3.9 acres of land. A two-story building houses the office and the manager's
apartment. The Registrant acquired the facility in December 1986 for a purchase
price of $2,300,000. As of February 28, 1999, the facility had an occupancy
level of 83%.
TRAMWAY - ALBUQUERQUE, NEW MEXICO
The Partnership owns a three-story enclosed facility located at 12920 Indian
School Road, at the intersection of Tramway Boulevard in Albuquerque, New Mexico
("Tramway"). This facility consists of approximately 82,000 gross square feet,
built on 1.2 acres of land. The Partnership purchased the undeveloped property
from an affiliate of the General Partner in October 1985 for a purchase price of
$298,566, which represented the affiliate's cost in the land. Construction of
the facility was completed in September 1987 at a cost of approximately
$1,691,501. As of February 28, 1999, the facility had an occupancy level of 80%.
Additional information relative to the Properties is provided elsewhere in this
report and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not subject to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Limited Partnership Unit Holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
(a) MARKET INFORMATION. No market for Limited Partnership Units exists or is
expected to develop.
(b) HOLDERS. The approximate number of holders of the Registrant's Limited
Partnership Units as of the close of business on December 31, 1998 was 991.
(c) DIVIDENDS. During the years ended December 31, 1993 through 1994, and 1996
through 1998 the Partnership made distributions of cash to the Limited
Partners. No distributions were made in 1995. The source of the
distributions were as follows:
1993 1994 1995 1996 1997 1998
-------- -------- ----- -------- -------- --------
From net income $152,881 $209,961 $ -0- $375,000 $376,773 $347,613
From partners' capital 147,119 90,039 -0- -0- 148,227 252,387
-------- -------- ----- -------- -------- --------
$300,000 $300,000 $ -0- $375,000 $525,000 $600,000
-------- -------- ----- -------- -------- --------
<PAGE>
The Registrant will make annual distributions, to the extent available, of Cash
Available for Distribution. There is, however, no assurance as to when or
whether such cash will be available for distribution to the Limited Partners.
Cash Available for Distribution is generally the Partnership's Excess Reserves
and Cash Flow after reduction for any additions to reserves, and after payment
of all operating cash expenses.
To the extent available, Cash Available for Distribution for any Partnership
fiscal year will be distributed 95% to the Limited Partners and 5% to the
General Partner. As referred to in Item 11, the general partner is to be
allocated a minimum of 1% of the cash available for distribution.
If in any period the General Partner determines that Partnership working capital
reserves are in excess of the amount deemed necessary for Partnership operations
(such excess being called "Excess Reserves"), such Excess Reserves may be
distributed as Cash Available for Distribution.
Cash Available for Distribution will be distributed to the Limited Partners of
record as of the end of the applicable period in the ratio which the Units owned
by such Limited Partner bears to the total Units owned by all Limited Partners
entitled to such distribution.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and notes thereto included under Item 8 of this report.
This data is not covered by the opinion of independent certified public
accountants.
For the Period
------------------------------------------------------
Jan. 1, 1991 Jan. 1, 1992 Jan. 1, 1993 Jan. 1, 1994
Statement of Thru Thru Thru Thru
Income Information: Dec 31, 1991 Dec 31, 1992 Dec 31, 1993 Dec 31, 1994
------------ ------------ ------------ ------------
Total Revenues $ 832,283 $ 896,654 $ 898,749 $ 976,287
Net Income (Loss) $ 81,394 $ 151,204 $ 160,927 $ 221,012
Net Income (Loss) Per
Limited Partnership Unit $ 5.15 $ 9.58 $ 10.19 $ 14.00
Jan 1, 1995 Jan 1, 1996 Jan 1, 1997 Jan 1, 1998
Statement of Thru Thru Thru Thru
Income Information: Dec 31, 1995 Dec 31, 1996 Dec 31, 1997 Dec 31, 1998
------------ ------------ ------------ ------------
Total Revenues $ 1095,127 $ 1125,211 $ 1124,039 $ 1110,393
Net Income (Loss) $ 317,140 $ 450,554 $ 396,603 $ 365,909
Net Income (Loss) Per
Limited Partnership Unit $ 20.08 $ 28.54 $ 25.11 $ 23.17
<PAGE>
Balance Sheet As of As of As of As of
Information: Dec 31, 1991 Dec 31, 1992 Dec 31, 1993 Dec 31, 1994
------------ ------------ ------------ ------------
Total Assets $6,351,974 $6,209,730 $6,054,998 $5,973,592
Long-Term Debt $ 932,765 $ 936,705 $ 917,325 $ 904,267
Partners' Capital $5,338,640 $5,211,911 $5,069,808 $4,987,790
Distributions Per Unit $ 13.34 $ 18.33 $ 20.00 $ 20.00
Balance Sheet As of As of As of As of
Information: Dec 31, 1991 Dec 31, 1992 Dec 31, 1993 Dec 31, 1994
------------ ------------ ------------ ------------
Total Assets $5,396,037 $5,461,547 $5,335,401 $5,094,010
Long-Term Debt $ -0- $ -0- $ -0- $ -0-
Partners' Capital $5,304,930 $5,376,696 $5,242,996 $5,002,845
Distributions Per Unit $ -0- $ 25.00 $ 35.00 $ 40.00
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(a)(1) and (a)(2) LIQUIDITY AND CAPITAL RESOURCES
The Registrant was organized in December 1984 and its offering of Limited
Partnership Units was declared effective March 8, 1985. The entire offering of
$7,500,000 was sold during the offering period.
The cash balance at December 31, 1998 of $417,035 will be used primarily as
working capital reserves and, when appropriate, for distributions to the Limited
Partners. Increases in capital resources and corresponding increases in the
Registrant's liquidity are dependant upon the registrant's ability to increase
rental income. See below for further discussion.
The registrant has acquired and developed all of its properties, therefore, no
significant additional outlays of funds are expected beyond those items already
budgeted.
(a)(3) RESULTS OF OPERATIONS
The Partnership's three operating facilities and dates opened are as follows:
Facility Date Opened
-------- -----------
Bell Road January 1986
63rd Avenue December 1986
Tramway September 1987
In 1998 the Registrant's facilities generated $1,089,040 in rental income,
nearly identical to 1997. Occupancy figures are summarized as follows:
Average Occupancy High Low 12/31/98
----------------- ---- --- --------
Bell Road 81% 89% 74% 74%
63rd Avenue 77% 80% 72% 79%
Tramway 77% 80% 74% 78%
More recent occupancy data is found in Item 2.
<PAGE>
Rental income and occupancies decreased slightly at each of our sites. A mini
building boom in storage facilities is partly responsible for the decrease in
occupancy rates. Management is performing due diligence at each facility to
determine where rents can be raised, where additional marketing is necessary,
and what other steps can be taken to increase rental revenues. Revenues are
expected to be similar in 1999 as both demand for and supply of storage space
increases.
Expenses relating to property operations were $454,890 in 1998, approximately
$18,000 more than 1997. Higher property taxes were responsible for the increase.
Partnership administration expenses for 1998 were slightly less than 1997.
Expenses in 1999 should be similar to those in prior years.
Net cash generated from operations of $565,578 was used to make the annual
distribution and to rebuild cash reserves. Should management be successful in
reversing the recent trend of decreasing rental income cash flow generated from
operations should increase accordingly.
Inflation has historically been a contributing factor to the increase in rental
income levels and capital appreciation of income producing real estate. The most
significant trends or uncertainties having an impact on the Partnership's
revenues are those associated with inflation, changes in demand for self-storage
spaces and fluctuations in rental and occupancy rates of the Partnership
properties. The modest inflation levels of the past several years have kept rent
increases to a minimum. We continue to monitor the properties performance to
maximize long-term capital appreciation which is consistent with the
Partnership's objectives.
The Company's Assessment of its Year 2000 issues is complete. The Company has
determined that there is likely to be no material adverse consequence of Year
2000 issues on the Company's business, results of operations, or financial
condition. The Company has few information technology or non-information
technology aspects which may be affected by Year 2000; those that may be
affected are the computing system used to administer operations. Investigation
and queries of the software and hardware supplier's have determined by written
statements or other assurances that they are Year 2000 compliant. The Company
has no major supplier, vendor, or customers which is likely to materially affect
the Company if it is affected by the Year 2000 problem. The Company has
determined that it is at little risk of material disruption of its business due
to Year 2000 issues.
In the event the computing system fails, the company will purchase and replace
the necessary hardware and software for critical systems and contact the
software and hardware suppliers to replace, at their cost, the failed components
for remaining computers. Costs for Year 2000 compliance have been for
investigation only and no remedial actions have or have been taken. The costs
have been minimal and are not material to the financial condition of the
Company. Moreover, it is not expected that any remedial action will be necessary
or appropriate.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Statements and Schedules attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant is managed by its General Partner, Armored Storage One Limited
Partnership. Armored Storage One Limited Partnership is managed by Armored
Management, L.L.C, the members of which are Carl R. Spiekerman and Dale D.
Ulrich.
The Partnership entered into an agreement with Armored Management, LLC to manage
the Partnership's self-storage facilities. The terms of the agreement are for
one year and shall be renewed on a month-to-month basis unless and until either
party terminates the agreement. The agreement provides that the manager shall
receive, as compensation for services, the greater of $1000 per month or 6% of
the actual gross cash receipts from the prior month for each of the three
facilities it manages.
The Partnership entered into an agreement with Armored Management to provide
administrative services to the Partnership, such as investor relations, database
management (including data processing of investor subscriptions, fund
distributions, ownership changes, and subscription input), accounting,
preparation and/or coordinating the preparation of periodic regulatory reports
and tax related forms. The term of the agreement is for one year and shall
continue on a month-to-month basis unless either party terminates the agreement.
The agreement provides that Armored Management shall receive a fixed fee of
$5000 per month as compensation for its services. Additionally, Armored
Management bills the Partnership for its cost of participation in the annual
partnership audit.
(a) IDENTIFICATION OF DIRECTORS
Carl R. Spiekerman and Dale D. Ulrich are the managing members of Armored
Management L.L.C. Mr. Spiekerman, 55, is the sole shareholder and Chief
Executive Officer of The Environmental Group, Inc., a Phoenix based real estate
development firm. Mr. Spiekerman holds a Bachelor's Degree from the University
of Puget Sound, Tacoma, Washington, and a Master's Degree from the University of
Washington. Mr. Ulrich, 45, is a C.P.A. and a panel trustee for the District of
Arizona Bankruptcy Court and former president of the Arizona Society of CPA's.
Mr. Ulrich graduated from Marquette University, Milwaukee, Wisconsin.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS
None
(c) SIGNIFICANT EMPLOYEES
None
(d) FAMILY RELATIONSHIPS
None
(e) LEGAL PROCEEDINGS
None
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The General Partner, and its affiliates, earned fees, commissions, and expense
reimbursements, as permitted in the Limited Partnership Agreement, as follows:
For the Year Ended: 12/31/98 12/31/97 12/31/96
-------- -------- --------
Direct expenses relating to administration
of the Partnership which were reimbursed or
are to be reimbursed to the Managing General
Partner, or affiliates thereof None $6000 None
General Partner's distributive share of cash
cash available for distribution $6060(1) $5303 $3788
Real estate commission upon the sale of
Partnership property payable to the
General Partner None(2) None None
General Partner's share of sale or
refinancing proceeds None(3) None None
The foregoing discussion of executive compensation is complete and accurate to
the best knowledge of the registrant's management. The registrant pays no
salaries or bonuses and has no stock options or restricted stock. Moreover, the
registrant has no pension plans or long term incentive plans. Registrant has no
employment agreements.
(1)Cash Available for Distribution, if any, shall be Distributed 95% to the
Limited Partners, and 5% to the General Partner, with the General Partner's
share subordinated to a 10% annual cumulative, noncompounded return with respect
to the Limited Partners' Adjusted Capital Contributions.
If at any time the allocation and distribution provisions of the Limited
Partnership Agreement do not result in the allocation or distribution to the
General Partners of an aggregate of at least one percent (1%) of the item being
allocated or distributed, the Limited Partnership Agreement states that the
General Partners are to be allocated or distributed so much more of such item as
will cause the General Partners to be allocated or distributed one percent (1%)
thereof.
(2)The General Partner, or an affiliate, is entitled to receive a subordinated
real estate commission in an amount not to exceed the lesser of one-half the
amount customarily charged by others rendering similar services or 3% of the
sale price.
(3)Sale or refinancing proceeds will be distributed to Limited Partners in
accordance with their Capital Accounts in an amount equal to their Adjusted
Capital Contributions, then to the Limited Partners in an amount, if any, by
which actual Distributions of Cash Available for Distribution were less than the
preferred 10% return, then to the General Partner, a subordinated unpaid 5% of
Cash Available for Distribution, and the remaining 85% to the Limited Partners,
and 15% to the General Partner.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At December 31, 1998 there was one owner of more than 5% of the voting
securities of the Registrant. Public Storage, Inc. 701 Western Avenue, Suite
200, Glendale, CA 91201, owned 1,343 limited partnership units constituting
8.95% of all outstanding units.
At December 31, 1998 Dale D. Ulrich, a member of the managing general partner,
owned 229 limited partnership units, constituting 1.5% of the outstanding units.
There are no arrangements known to the Registrant, the operation of which may,
at a subsequent date, result in a change in control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1998 Armored Management LLC received $64,861
in property management fees, $60,000 for partnership administration, and $5,000
for assistance in the annual audit.
During the years ended December 31, 1997 and 1996 QuestCor, an affiliate of the
General Partner, received the following compensation:
1997 1996
------- -------
Property management $64,581 $65,580
Partnership administration $60,000 $54,000
Audit assistance $ 5,000 $ 5,000
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) LIST OF FINANCIAL STATEMENTS AND SCHEDULES AS A PART OF THIS
REPORT
Reports of Independent Certified Public Accountants
FINANCIAL STATEMENTS
Balance sheet
Statement of operations
Statement of changes in partners' equity
Statement of cash flows
Notes to financial statements
(a)(3) LIST OF EXHIBITS FILED AS PART OF THIS REPORT
None
(b) REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARMORED STORAGE INCOME INVESTORS
LIMITED PARTNERSHIP
By: Armored Storage One Limited Partnership
Its: General Partner
Dated: 3/25/99 By: /s/ Carl R. Spiekerman
--------------------------------------------
Carl R. Spiekerman,
Member, Armored Management L.L.C.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person in the capacity on the date
indicated.
SIGNATURE TITLE DATE
/s/ Carl R. Spiekerman for Armored Management, L.L.C. 3/25/99
- ---------------------- Managing General Partner of ----------------
Carl R. Spiekerman Armored Storage One Limited
Partnership, the General
Partner of the Registrant
<PAGE>
[LETTERHEAD OF TOBACK CPAs, P.C.]
To the Partners of
Armored Storage Income Investors
Limited Partnership
Phoenix, Arizona
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Armored Storage Income
Investors Limited Partnership as of December 31, 1998 and 1997 and the related
statements of operations, changes in partners' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Armored Storage Income
Investors Limited Partnership as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Toback CPAs, P.C.
TOBACK CPAs, P.C.
Phoenix, Arizona
January 27, 1999
<PAGE>
ARMORED STORAGE INCOME INVESTORS
LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
Rental property and equipment:
Land (Note 3) $ 1,139,828 $ 1,139,828
Building (Note 3) 5,856,762 5,856,762
Furniture and fixtures (Note 3) 108,020 74,576
----------- -----------
7,104,610 7,071,166
Less accumulated depreciation (2,442,800) (2,244,891)
----------- -----------
4,661,810 4,826,275
Cash and cash equivalents 417,035 490,961
Accounts receivable, net of allowance
of $15,000 and 18,000 15,000 18,000
Other assets 165 165
----------- -----------
Total assets $ 5,094,010 $ 5,335,401
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 46,165 $ 46,405
Unearned rent 45,000 46,000
----------- -----------
Total liabilities 91,165 92,405
----------- -----------
Commitments (Note 4)
Partners' equity (Note 5):
General partner 79,007 66,771
Limited partners; 15,000 units outstanding 4,923,838 5,176,225
----------- -----------
5,002,845 5,242,996
----------- -----------
Total liabilities and partners' equity $ 5,094,010 $ 5,335,401
=========== ===========
The accompanying notes are an
integral part of these financial statements.
2
<PAGE>
ARMORED STORAGE INCOME INVESTORS
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---------- ---------- ----------
Rental income $1,089,040 $1,105,613 $1,118,127
Interest income 21,353 18,426 7,084
---------- ---------- ----------
1,110,393 1,124,039 1,125,211
---------- ---------- ----------
Expenses:
Property operations 454,890 436,207 393,958
Partnership administration 91,685 96,005 84,114
Depreciation and amortization 197,909 195,224 196,585
---------- ---------- ----------
744,484 727,436 674,657
---------- ---------- ----------
Net income $ 365,909 $ 396,603 $ 450,554
========== ========== ==========
Net income allocated to general partner $ 18,296 $ 19,830 $ 22,528
Net income allocated to limited partners 347,613 376,773 428,026
---------- ---------- ----------
Net income $ 365,909 $ 396,603 $ 450,554
========== ========== ==========
Net income allocated to limited
partners per limited
partnership unit (Note 5) $ 23.17 $ 25.11 $ 28.54
========== ========== ==========
Distributions per
limited partnership unit $ 40.00 $ 35.00 $ 25.00
========== ========== ==========
Number of limited partnership
units outstanding 15,000 15,000 15,000
========== ========== ==========
The accompanying notes are an
integral part of these financial statements.
3
<PAGE>
ARMORED STORAGE INCOME INVESTORS
LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
General Limited
partner partners Total
------- -------- -----
Balance, December 31, 1995 $ 33,504 $ 5,271,426 $ 5,304,930
Distributions to partners (3,778) (375,000) (378,788)
Net Income 22,528 428,026 450,554
-------- ----------- -----------
Balance, December 31, 1996 52,244 5,324,452 5,376,696
Distributions to partners (5,303) (525,000)
Net income 19,830 376,773 396,603
-------- ----------- -----------
Balance, December 31, 1997 66,771 5,176,225 5,242,996
Distributions to partners (6,060) (600,000)
Net income 18,296 347,613 365,909
-------- ----------- -----------
Balance, December 31, 1998 $ 79,007 $ 4,923,838 $ 5,002,845
======== =========== ===========
The accompanying notes are an
integral part of these financial statements.
4
<PAGE>
ARMORED STORAGE INCOME INVESTORS
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Cash received from customers $ 1,091,040 $ 1,102,481 $ 1,131,350
Cash paid to suppliers and
service providers (546,815) (526,508) (488,885)
Interest received 21,353 18,426 7,084
----------- ----------- -----------
Net cash provided by
operating activities 565,578 594,399 649,549
----------- ----------- -----------
Cash flows from investing
activities:
Purchase of rental property
and equipment (33,444) -- --
----------- ----------- -----------
Net cash provided used in
investing activities (33,444) -- --
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners (606,060) (530,303) (378,788)
----------- ----------- -----------
Net cash used in financing
activities (606,060) (530,303) (378,788)
----------- ----------- -----------
(Decrease) increase in cash
and cash equivalents (73,926) 64,096 270,761
Cash and cash equivalents, beginning 490,961 426,865 156,104
----------- ----------- -----------
Cash and cash equivalents, ending $ 417,035 $ 490,961 $ 426,865
=========== =========== ===========
The accompanying notes are an
integral part of these financial statements.
5
<PAGE>
ARMORED STORAGE INCOME INVESTORS
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 365,909 $ 396,603 $ 450,554
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 197,909 195,224 196,585
Changes in assets and liabilities:
Decrease (increase)
in accounts receivable 3,000 (4,982) 8,666
(Decrease) increase
in accounts payable
and accrued expenses (240) 5,704 (10,813)
(Decrease) increase in unearned
rent (1,000) 1,850 4,557
--------- --------- ---------
Net cash provided by operating activities $ 565,578 $ 594,399 $ 649,549
========= ========= =========
The accompanying notes are an
integral part of these financial statements.
6
<PAGE>
ARMORED STORAGE INCOME INVESTORS
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Partnership organization:
Armored Storage Income Investors Limited Partnership (the Partnership) was
organized under the laws of the State of Arizona pursuant to an
agreement of limited partnership filed December 4, 1984, for the
purpose of acquiring, developing, owning and operating self-service
storage facilities in Arizona and New Mexico. The initial general
partners were Armored Storage, Inc., an Arizona corporation (the
Managing General Partner) and Armored Storage One Limited Partnership,
an Arizona limited partnership. The Partnership commenced full activity
on January 9, 1985. During 1986, the Partnership completed an offering
of limited partnership units wherein 15,000 limited partnership units
were purchased by investors for $7,500,000. In December, 1987, Armored
Storage, Inc. withdrew from the Partnership and Armored Storage One
Limited Partnership then became the Managing General Partner and
assumed the partner's capital account of Armored Storage, Inc. In
February, 1994, Armored Management Limited Liability Corporation
(L.L.C.) was appointed the general partner of Armored Storage One
Limited Partnership.
2. Summary of significant accounting policies:
Rental property and equipment:
Rental property and equipment are stated at cost. Depreciation is provided
on the straight-line method over the following estimated useful lives:
Years
-----
Buildings 30
Furniture and fixtures 5
Rental income:
The Partnership generates rental income from month-to-month rental
agreements for space at its self-storage facilities. Rental income is
recognized on the accrual basis.
Accounts receivable are recorded for rental payments that are delinquent at
year end. An allowance is recorded for management's estimate of
uncollectible rental receivables. After a receivable is 90 days
delinquent, the contents of the unit are sold and the proceeds are used
to reduce the receivable balance.
7
<PAGE>
2. Summary of significant accounting policies, continued:
Income taxes:
The Partnership does not record a provision for income taxes as any income
or loss from the partnership is recognized by the individual partners
for tax reporting purposes. Differences between tax bases and reported
amounts of the Partnership assets and liabilities related to a
difference in accumulated depreciation of approximately $600,000 at
December 31, 1998 and capitalized syndication costs for tax purposes of
approximately $960,000.
Cash and cash equivalents:
For reporting in the statements of cash flows, the Partnership considers
all certificates of deposit and money market funds purchased with a
maturity of three months or less to be cash equivalents.
Concentration of risk:
Periodically during the year, the Company maintains cash in financial
institutions in excess of the amounts insured by the federal
government.
Advertising costs:
Advertising costs are charged to operations as incurred.
Accounting 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.
8
<PAGE>
3. Rental property and equipment:
Rental property and equipment consist of the following:
1998 1997
---- ----
Land:
Phoenix - Bell Road $ 214,058 $ 214,058
Phoenix - 63rd Avenue 606,222 606,222
Albuquerque - Tramway Boulevard 319,548 319,548
---------- ----------
1,139,828 1,139,828
---------- ----------
Buildings:
Phoenix - Bell Road 2,214,474 2,214,474
Phoenix - 63rd Avenue 1,810,050 1,810,050
Albuquerque - Tramway Boulevard 1,832,238 1,832,238
---------- ----------
5,856,762 5,856,762
---------- ----------
Furniture and fixtures:
Phoenix - Bell Road 44,438 32,624
Phoenix - 63rd Avenue 38,404 24,853
Albuquerque - Tramway Boulevard 25,178 17,099
---------- ----------
108,020 74,576
---------- ----------
$7,104,610 $7,071,166
========== ==========
4. Commitments and related party transactions:
Prior to January 1, 1998, the Partnership had entered into agreements with
Chris Cap Corporation dba QuestCor, Inc. (QuestCor) to manage the
Partnership's self-storage facilities. The agreements provided that the
manager receive, as compensation for services, the greater of $1,000
per month or 6% of the gross cash receipts for each of the three
facilities it manages. Effective January 1, 1998, the partnership
entered into an agreement with similar terms with Armored Management,
L.L.C. The term of the agreement is for one year through December 31,
1998.
9
<PAGE>
4. Commitments and related party transactions, continued:
Prior to January 1, 1998, the Partnership operated under an agreement with
QuestCor to provide administrative services to the Partnership, such as
investor relations, database management (including data processing of
investor subscriptions, fund distributions, ownership changes, and
subscription input), accounting, preparation and coordination of the
preparation of periodic regulatory reports and tax related forms. The
agreement provided for payment by the Partnership to Questcor of $5,000
per month for 1997 and $4,500 per month for 1996 as compensation for
its services. Additionally, the Partnership paid QuestCor approximately
$5,000 per year for providing assistance in the annual Partnership
audit. A 50% member of Armored Management, L.L.C. was a 50% shareholder
of QuestCor. Effective January 1, 1998, the partnership entered into a
similar agreement with Armored Management, L.L.C. The term of the
agreement is for one year through December 31, 1998 and shall continue
on a month-to-month basis unless either party terminates the agreement.
The following are the approximate fees paid to the related management
companies for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Property management $65,000 $65,500 $68,000
Partnership administration 60,000 60,000 54,000
Audit assistance 5,000 5,000 5,000
During the year ended December 31, 1997, an affiliate of the General Partner
received $6,000, in direct expense reimbursements associated with a
market study of the facilities.
5. Partners' equity:
The limited partnership agreement provides that profits, losses and cash
available for distribution shall be allocated as follows:
Allocation of net income:
Net income is to be allocated to the limited partners, ninety-five percent
(95%) in accordance with their capital percentages and to the general
partner, five percent (5%), until such time as the limited partners
have received in cash from all sources (other than cash available for
distribution) an amount equal to one hundred percent (100%) of their
capital thereafter to the Limited Partners, eighty-five percent (85%)
in accordance with their capital percentages, and to the general
partner, fifteen percent (15%).
10
<PAGE>
5. Partners' equity, continued:
Allocation of net loss:
Net losses are to be allocated to the limited partners, ninety-nine percent
(99%) in accordance with their capital percentages and to the general
partner, one percent (1%), until such time as the limited partners have
received distributions of cash from all sources (other than cash
available for distribution) in an amount equal to one hundred percent
(100%) of their capital contributions; thereafter to the limited
partners, eighty-five percent (85%) in accordance with their capital
percentages and to the general partner, fifteen percent (15%).
Cash available for distribution:
All cash available for distribution, if any, realized by or available to
the Partnership, shall be distributed no less frequently than annually
in the following percentages: (1) to the limited partners, ninety-five
percent (95%) in accordance with their capital percentages; and (2) to
the general partner five percent (5%) subordinated to a ten percent
(10%) annual cumulative noncompounded return with respect to the
limited partner's adjusted capital contributions determined as of the
first day of each calendar quarter, which distribution must be made
before the general partner is entitled to participate in cash available
for distribution.
Cash available for distribution is generally the Partnership's net cash flow
less amounts set aside as reserves.
If in any period the general partner determines that Partnership working
capital reserves are in excess of the amount deemed necessary for
Partnership operations, such excess reserves may be distributed as cash
available for distribution.
If, at any time, the allocation and distribution provisions of the Limited
Partnership Agreement do not result in the allocation or distribution
to the general partners of an aggregate of at least one percent (1%) of
the item being allocated or distributed, the limited partnership
agreement states that the general partner is to be allocated or
distributed so much more of such item as will cause the general partner
to be allocated or distributed one percent (1%) thereof.
11
<PAGE>
6. Partnership administration and property operations:
Included in partnership administration and property operations are the
following expenses:
1998 1997 1996
---- ---- ----
Partnership administration:
Accounting fees $ 21,370 $ 21,690 $ 20,891
Property operations:
Advertising 22,403 40,706 15,187
Management fees 64,861 65,580 68,426
Property taxes 110,386 90,596 78,081
Repairs and maintenance 35,320 15,110 19,055
Utilities 59,303 65,030 59,464
Wages and payroll taxes 108,508 103,498 100,062
7. Impact of year 2000 (unaudited):
The Company's assessment of its Year 2000 issues is complete. The Company
has determined that there is likely to be no material adverse
consequence of Year 2000 issues on the Company's business, results of
operations, or financial condition. The Company has few information
technology or non-information technology aspects which may be affect
by Year 2000; those that may be affected are the computing system used
to administer operations. Investigation and queries of the software
and hardware suppliers have determined by written statements or other
assurances that they are Year 2000 compliant. The Company has no major
supplier, vendor, or customers which is likely to materially affect
the Company if it is affected by the Year 2000 problem. The Company
has determined that it is at little risk of material disruption of its
business due to Year 2000 issues.
In the event the computing system fails, the Company will purchase and
replace the necessary hardware and software for critical systems and
contact the software and hardware suppliers to replace, at their cost,
the failed components for remaining computers. Costs for the Year 2000
compliance have been for investigation only and no remedial actions
have or will be taken. The costs have been minimal and are not
material to the financial condition of the Company.
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 417,035
<SECURITIES> 0
<RECEIVABLES> 30,000
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 432,200
<PP&E> 7,104,610
<DEPRECIATION> 2,442,800
<TOTAL-ASSETS> 5,094,010
<CURRENT-LIABILITIES> 91,165
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,002,845
<TOTAL-LIABILITY-AND-EQUITY> 5,094,010
<SALES> 0
<TOTAL-REVENUES> 1,110,393
<CGS> 0
<TOTAL-COSTS> 642,799
<OTHER-EXPENSES> 91,685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 365,909
<INCOME-TAX> 0
<INCOME-CONTINUING> 365,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365,909
<EPS-PRIMARY> 23.17
<EPS-DILUTED> 23.17
</TABLE>
