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 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to ________________________
Commission file number: 33-2732
------------
ARMORED STORAGE INCOME INVESTORS 2 (a California Limited Partnership)
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 93-0930503
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3839 N. 3rd St., Ste. 108, Phoenix, Arizona 85012
- --------------------------------------------------- ------------------------
(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, 1998, 4210 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 April 4, 1986 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 2 Limited Partnership (the "Registrant") is a
limited partnership formed on January 13, 1986 under the laws of the State of
California to acquire, develop, own and operate self-storage facilities using a
minimum of mortgage indebtedness. The Registrant sold $2,105,000 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. 33-2732 as
amended. The offering commenced on April 4, 1986 and terminated on April 3,
1987.
(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 (loss) and
identifiable assets attributable thereto for the fiscal year ended December 31,
1997 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
facility owned and operated by the Registrant is designed to offer low cost,
accessible and secure storage space for business and personal use. In addition
to some indoor units, on-site, live-in managers provide an extra measure of
security. The facility of the Registrant is 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 Property; and (iii) to preserve and protect the Limited
Partners' capital. There can be no assurance that these objectives will be
attained.
<PAGE>
Markets and Competition.
The metropolitan Phoenix market has one of the greatest saturations of storage
facilities per capita in the country. This increased competition has required
delaying anticipated rental increases which may reduce availability of cash
distributions. 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, 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 owns one self-storage facility located in Phoenix, Arizona.
Washington Street
The Registrant's self-storage facility is located at 3036 E. Washington Street,
Phoenix, Arizona, in the central part of the city, with close proximity to Sky
Harbor International Airport and the downtown business center. The facility,
which consists of both one and two level storage buildings, is approximately
44,000 gross square feet, built on approximately 1.82 acres of land. The
property was acquired on December 23, 1986, for a total purchase price of
$1,122,000. The facility was approximately 10 years old at the time of the
Registrant's purchase, and had maintained an occupancy level averaging 90% for
the past several years. As of February 28, 1998 the facility was 82% occupied.
<PAGE>
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
---------------------------------------------------
None
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, 1997 was 337.
(c) Dividends. During the years ended December 31, 1991, through 1997, the
Partnership made distributions of cash to the limited partners. The source of
these distributions were as follows:
1991 1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------- --------
From net income $ -0- $10,502 $ -0- $26,704 $ 9,585 $ 39,914 $ 35,115
From partners'
capital 33,975 23,481 33,975 7,271 28,305 2,186 28,035
------- ------- ------- ------- ------- -------- --------
$33,975 $33,983 $33,975 $33,975 $37,890 $ 42,100 $ 63,150
======= ======= ======= ======= ======= ======== ========
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.
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.
<PAGE>
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.
<TABLE>
<CAPTION>
For the Period
From Inception
Jan 1, 1991 Jan 1, 1992 Jan 1, 1993 Jan 1, 1994
Statement of Income Thru Thru Thru Thru
Information: Dec 31, 1991 Dec 31, 1992 Dec 31, 1993 Dec 31, 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues $ 174,295 $ 178,981 $ 168,868 $ 192,084
Net Income (Loss) $ (3,944) $ 11,055 $ (13,369) $ 28,109
Net Income (Loss) Per
Limited Partnership Unit $ (.93) $ 2.49 $ (3.14) $ 6.34
Jan 1, 1995 Jan 1, 1996 Jan 1, 1997
Thru Thru Thru
Dec 31, 1995 Dec 31, 1996 Dec 31, 1997
------------ ------------ ------------
Total Revenues $ 191,603 $ 222,536 $ 232,967
Net Income (Loss) $ 10,089 $ 42,015 $ 36,963
Net Income (Loss) Per
Limited Partnership Unit $ 2.28 $ 9.48 $ 8.34
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 $ 1,145,802 $ 1,117,739 $ 1,076,397 $ 1,070,340
Long-Term Debt $ -0- $ -0- $ -0- $ -0-
Partners' Capital $ 1,123,515 $ 1,103,365 $ 1,059,051 $ 1,055,872
Distributions Per Unit $ 8.07 $ 8.07 $ 8.07 $ 8.07
As of As of As of
Dec 31, 1995 Dec 31, 1996 Dec 31, 1997
------------ ------------ ------------
Total Assets $ 1,047,288 $ 1,051,247 $ 1,028,366
Long-Term Debt $ -0- $ -0- $ -0-
Partners' Capital $ 1,027,688 $ 1,030,966 $ 1,006,757
Distributions Per Unit $ 9.00 $ 10.00 $ 15.00
</TABLE>
<PAGE>
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 January, 1986 and its offering of Limited
Partnership Units was declared effective April 13, 1986. The Registrant raised
$2,105,000 during the offering period.
The cash balance at December 31, 1997 of $99,503 will be used primarily as
working capital reserves and, when appropriate, for distributions to the Limited
Partners. Capital resources will only increase during the coming year as a
result of a corresponding increase rental activity.
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
---------------------
Rental income for 1997 was Slightly higher than in 1996. An increase in rental
rates and an improvement in collections were primarily responsible. The
Washington Street facility maintained an overall occupancy level of
approximately 90%. During the year occupancy ranged from 82% to 97%. Occupancy
at December 31, 1996 was 82%.
Expenses relating to property operations were also slightly higher in 1997.
Partnership administration expenses were similar to 1996.
The registrant anticipates that rental income in 1998 will be similar to 1997.
Our market studies indicate that our rates are competitive and future rent
increases will be made on a selective basis. Expenses for 1998 should be similar
to 1997 unless unforeseen circumstances occur.
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
property. The modest inflation levels of the past several years have kept rent
increases to a minimum. We continue to monitor the property's performance to
maximize long-term capital appreciation which is consistent with the
Partnership's objectives.
<PAGE>
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
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The Partnership is managed by Armored Management, L.L.C., a limited liability
company whose members include Carl R. Spiekerman and Dale D. Ulrich. Armored
Management, L.L.C. was elected as general partner by a vote of the limited
partners in the fourth quarter of 1993. The new general partner succeeds Armored
Storage Ltd., which dissolved because of the dissolution of its sole general
partner.
The partnership entered into an agreement with Armored Management, LLC to manage
the Partnership's self-storage facility. 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.
The Partnership entered into an agreement with Armored Management, LLC 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 one year and shall continue
on a month-to-month basis unless either party terminates the agreement. The
agreement provides that Armored Management, LLC shall receive a fixed fee of
$3,000 per month as compensation for its services. Additionally, Armored
Management, LLC bills the Partnership for its cost of providing assistance 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, 54, 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, 44, is a C.P.A. and also 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: 12/31/97 12/31/96 12/31/95
-------- -------- --------
Direct expenses relating to administration of the
Partnership which were reimbursed or are to be
reimbursed to the Managing General Partner, or
affiliates thereof $2000 None $2000
General Partner's distributive share of
cash available for distribution $3323(1) 425 383
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
(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 Contribution.
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, are 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 80% to the Limited Partners,
and 20% to the General Partner.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
There is no person known to the Registrant who owns beneficially or of record
more than 10% of the voting securities of the Registrant. However, the General
Partner has discretionary control over most of the decisions made by or for the
Registrant pursuant to the terms of the Partnership Agreement. The Registrant
has no directors or officers.
As of December 31, 1996 Dale D. Ulrich, one of the members of the managing
general partners, owns 39 limited partnership units constituting less than 1% of
the total 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 years ended December 31, 1997 and 1995 The Environmental Group, Inc.
an affiliate of the General Partner, received or incurred $2000 in direct
expense reimbursement for the administration of the Partnership.
During the years ended December 31, 1997, 1996 and 1995 QuestCor, Inc. was paid
the following fees:
1997 1996 1995
------- ------- -----
Property management $13,918 $13,313 $12,179
Partnership administration $30,000 $30,000 $30,000
Audit assistance $ 5,000 $ 5,000 $ 5,000
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
------
Report 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 2
LIMITED PARTNERSHIP
By: Armored Management, L.L.C.
Its: General partner
Dated: 3/24/98 By: /s/ Carl R. Spiekerman
----------- --------------------------
Carl R. Spiekerman, Member
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 Member of Armored Management 3/24/98
---------------------- L.L.C., general partner -------
Carl R. Spiekerman
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1997
CONTENTS
Page
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of operations 3
Statements of changes in partners' equity 4
Statements of cash flows 5 - 6
Notes to financial statements 7 - 11
<PAGE>
TOBACK CPAs, P.C.
To the Partners of
Armored Storage Income Investors 2
Phoenix, Arizona
INDEPENDENT AUDITOR'S REPORT
----------------------------
We have audited the accompanying balance sheets of Armored Storage
Income Investors 2 (a California limited partnership) as of December 31, 1997
and 1996, 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,
1997. 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 2 as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
TOBACK CPAs, P.C.
Phoenix, Arizona
February 19, 1998
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
----------- -----------
Rental property and equipment:
Land 242,825 $ 242,825
Building 1,068,145 1,068,145
Furniture and fixtures 22,655 22,655
----------- -----------
1,333,625 1,333,625
Less accumulated depreciation (407,462) (371,852)
----------- -----------
926,163 961,773
Cash and cash equivalents 99,503 87,874
Accounts receivable, net of allowance
of $2,700 and $1,600 2,700 1,600
----------- -----------
Total assets $ 1,028,366 $ 1,051,247
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 15,609 $ 15,281
Unearned rent 6,000 5,000
----------- -----------
Total liabilities 21,609 20,281
----------- -----------
Commitments (Note 3)
Partners' equity (Note 4):
General partner (3,742) (2,265)
Limited partners; 4,210 units outstanding 1,062,545 1,090,580
----------- -----------
1,058,803 1,088,315
Less amount due from former
general partner (Note 5) (52,046) (57,349)
----------- -----------
1,006,757 1,030,966
----------- -----------
Total liabilities and partners' equity $ 1,028,366 $ 1,051,247
=========== ===========
The accompanying notes are an
integral part of these financial statements.
2
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ -------- --------
Rental income $ 231,117 $221,032 $190,629
Interest income 1,850 1,504 974
------------ -------- --------
232,967 222,536 191,603
------------ -------- --------
Expenses:
Property operations 107,676 95,154 96,153
Partnership
administration (Note 3) 52,718 49,875 50,148
Depreciation 35,610 35,492 35,213
------------ -------- --------
196,004 180,521 181,514
------------ -------- --------
Net income $ 36,963 $ 42,015 $ 10,089
============ ======== ========
Net income allocated to
general partner $ 1,848 $ 2,101 $ 504
Net income allocated to
limited partners 35,115 39,914 9,585
------------ -------- --------
Net income $ 36,963 $ 42,015 $ 10,089
============ ======== ========
Net income allocated to
limited partners per limited
partnership unit (Note 4) $ 8.34 $ 9.48 $ 2.28
============ ======== ========
Distributions per
limited partnership unit $ 14.98 $ 10.00 $ 9.00
============ ======== ========
Number of limited partnership
units outstanding 4,210 4,210 4,210
============ ======== ========
The accompanying notes are an
integral part of these financial statements.
3
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Amount due
from former
general General Limited
partner partner partners Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ (61,137) $ (4,062) $ 1,121,071 $ 1,055,872
Distributions to partners -- (383) (37,890) (38,273)
Net income -- 504 9,585 10,089
----------- ----------- ----------- -----------
Balance, December 31, 1995 (61,137) (3,941) 1,092,766 1,027,688
Distributions to partners -- (425) (42,100) (42,525)
Payments received from former
general partner 3,788 -- -- 3,788
Net income -- 2,101 39,914 42,015
----------- ----------- ----------- -----------
Balance, December 31, 1996 (57,349) (2,265) 1,090,580 1,030,966
Distributions to partners -- (3,325) (63,150) (66,475)
Payments received from former
general partner 5,303 -- -- 5,303
Net income -- 1,848 35,115 36,963
----------- ----------- ----------- -----------
Balance, December 31, 1997 $ (52,046) $ (3,742) $ 1,062,545 $ 1,006,757
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
4
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 231,017 $ 222,463 $ 192,957
Cash paid to suppliers and service providers (160,066) (144,979) (140,197)
Interest received 1,850 1,504 974
--------- --------- ---------
Net cash provided by operating activities 72,801 78,988 53,734
--------- --------- ---------
Cash flows from investing activities:
Purchase of rental property and equipment -- (8,175) (8,500)
--------- --------- ---------
Cash flows from financing activities:
Distributions to limited partners (63,150) (42,100) (37,890)
Distributions to general partner (3,325) (425) (383)
Payments received on due from former general
partner
5,303 3,788 --
--------- --------- ---------
Net cash used in financing activities (61,172) (38,737) (38,273)
--------- --------- ---------
Increase in cash and cash equivalents 11,629 32,076 6,961
Cash and cash equivalents:
Beginning 87,874 55,798 48,837
--------- --------- ---------
Ending $ 99,503 $ 87,874 $ 55,798
========= ========= =========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
5
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided
by operating activities
Net income $ 36,963 $ 42,015 $ 10,089
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 35,610 35,492 35,213
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable (1,100) 800 3,300
Increase in accounts payable and
accrued expenses 328 50 6,104
Increase (decrease) in unearned rent 1,000 631 (972)
----------- ----------- -----------
Net cash provided by operating activities $ 72,801 $ 78,988 $ 53,734
=========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
6
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Partnership organization:
Armored Storage Income Investors 2 (the Partnership), was organized under
the laws of the State of California pursuant to an agreement of limited
partnership filed January 13, 1986, for the purpose of acquiring,
developing, and operating self-service storage facilities in Phoenix,
Arizona. As of December 31, 1993, the General Partner was Armored
Storage, Ltd., a California Limited Partnership. Sales of the
Partnership units commenced in April of 1986 as the Partnership was
authorized to issue a total of 20,000 units for a total offering of
$10,000,000. The Partnership reached its minimum funding requirement of
2,400 units of limited partnership interests on September 22, 1986, and
has sold 4,210 units in total. The Partnership's offering period closed
on April 3, 1987. In January 1994, Armored Management L.L.C. assumed the
general partnership interest from Armored Storage, Ltd. as a result of a
majority vote of the limited partners.
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
-----
Building 30
Furniture and fixtures 5
Rental income and accounts receivable:
The Partnership generates rental income from month-to-month rental
agreements for space at its self-storage facility 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 units are generally sold and the proceeds
are used to reduce the receivable balance.
Advertising:
Advertising costs are charged to operations as incurred.
7
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Summary of significant accounting policies, continued:
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.
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.
Cash and cash equivalents:
For reporting in the statements of cash flows, the Partnership considers
all certificates of deposit and money market funds with a maturity of
three months or less to be cash equivalents.
3. Commitments and related party transactions:
Prior to January 1, 1998, the Partnership had entered into an agreement
with Chris Cap Corporation dba QuestCor, Inc. (QuestCor) to manage the
Partnership's self-storage facility. The agreement provided that the
manager receive, as compensation for services, the greater of $1,000 per
month or 6% of the gross cash receipts from the prior month. On January
1, 1998, the Partnership entered into a similar agreement for these
services with Armored Management, L.L.C. The term of the agreement is
for one year through December 31, 1998, to be renewed on a
month-to-month basis unless either party terminates the agreement.
8
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Commitments and related party transactions, continued:
Prior to January 1, 1998, the Partnership had also entered into 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
coordinating the preparation of periodic regulatory reports and tax
related forms. The agreement provided for payment by the Partnership to
QuestCor of $2,500 per month as compensation for its services.
Additionally, the Partnership paid QuestCor $5,000 per year for
providing assistance in the annual Partnership audit. A 50% member of
Armored Management, L.L.C. is also a 50% shareholder of QuestCor. On
January 1, 1998, the Partnership entered into a similar agreement for
these services 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 QuestCor, Inc. for the years
ended December 31, 1997, 1996 and 1995:
1997 1996 1995
--------- ---------- ----------
Property management $ 14,000 $ 13,000 $ 12,000
Partnership administration 30,000 30,000 30,000
Audit assistance 5,000 5,000 5,000
During the years ended December 31, 1997 and 1996, the Partnership paid an
affiliate of the General Partner $2,500 and $2,000, respectively, in
direct expense reimbursements associated with a market study for the
facility.
4. 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 contribution; thereafter to the Limited Partners, eighty percent
(80%) in accordance with their capital percentages, and to the General
Partner, twenty percent (20%).
9
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. 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 percent (80%) in accordance with their capital
percentages and to the General partner, twenty percent (20%).
Cash available for distribution:
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%).
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.
Minimum allocation and distribution to the General Partners:
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 Partner 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.
Sale or refinancing proceeds:
Any sale or refinancing proceeds will be distributed to yield a 10% annual
cumulative noncompounded return on Limited Partners' adjusted capital
contributions determined as of the first day of each calendar year
before the General Partner is entitled to participate.
10
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Due from former General Partner:
Due from former General Partner (Armored Storage, Ltd.) represents a
receivable of the Partnership for those amounts reimbursed to the former
Managing General Partner for syndication fees incurred in excess of the
percentage allowable by the Partnership's prospectus which was based on
the total amount of limited partners' capital raised. At December 31,
1986, syndication fees of approximately $309,000 had been paid. On April
3, 1987, the offering was terminated. Based on actual units sold through
the date of termination, excess syndication fees totalling approximately
$113,000 were recorded as amounts due from the former General Partner.
As collateral for the receivable, Armored Storage One Limited Partnership
(a related partnership through common general partners) assigned its
partnership interests in any proceeds or distributions from Armored
Storage Income Investors Limited Partnership to Armored Storage Income
Investors 2 until such time as the indebtedness is satisfied.
During 1995, no distributions were made from Armored Storage Income
Investors Limited Partnership to its partners and, as a result, no
proceeds were assigned to reduce the due from former general partner.
6. Partnership administration and property operations:
Included in partnership administration and property operations are the
following expenses:
1997 1996 1995
---------- ---------- ----------
Partnership administration:
Accounting $ 13,275 $ 12,860 $ 11,520
Property operations:
Advertising 18,145 4,479 6,620
Insurance 2,369 2,233 2,085
Management fee 13,918 13,313 12,179
Property taxes 30,460 29,467 28,944
Repairs and maintenance 2,933 6,343 4,150
Utilities 6,616 6,950 7,368
Wages and payroll taxes 23,774 22,975 20,535
11
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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0
0
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