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, 1999
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)
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 [X]
As of March 1, 2000, 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,
1999 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.
1
<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 nature,
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. As of February 28, 2000 the facility was 73% occupied.
2
<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, 1999 was 337.
(c) DIVIDENDS. During the years ended December 31, 1997 through 1999, the
Partnership made distributions of cash to the limited partners. The source of
these distributions were as follows:
1997 1998 1999
------- ------- -------
From net income $35,115 $19,971 $ 0
From partners' capital 28,035 43,179 50,520
------- ------- -------
$63,150 $63,150 $50,520
======= ======= =======
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.
3
<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
----------------------------------------------------------------------
Jan 1, 1992 Jan 1, 1993 Jan 1, 1994 Jan 1, 1995
Statement of Income Thru Thru Thru Thru
Information: Dec 31, 1992 Dec 31, 1993 Dec 31, 1994 Dec 31, 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues $ 178,981 $ 168,868 $ 192,084 $ 191,603
Net Income (Loss) $ 11,055 $ (13,369) $ 28,109) $ 10,089
Net Income (Loss) Per
Limited Partnership Unit $ 2.49 $ (3.14) $ 6.34 $ 2.28
Jan 1, 1996 Jan 1, 1997 Jan 1, 1999 Jan 1, 1999
Thru Thru Thru Thru
Dec 31, 1996 Dec 31, 1997 Dec 31, 1998 Dec 31, 1999
------------ ------------ ------------ ------------
Total Revenues $ 222,536 $ 232,967 $ 217,933 $ 210,390
Net Income (Loss) $ 42,015 $ 36,963 $ 21,022 $ (6,318)
Net Income (Loss) Per
Limited Partnership Unit $ 9.48 $ 8.34 $ 4.74 $ (1.43)
Balance Sheet As of As of As of As of
Information: Dec 31, 1992 Dec 31, 1993 Dec 31, 1994 Dec 31, 1995
------------ ------------ ------------ ------------
Total Assets $1,117,739 $ 1,076,397 $ 1,070,340 $ 1,047,288
Long-Term Debt $ 0 $ 0 $ 0 $ 0
Partners' Capital $1,103,365 $ 1,059,051 $ 1,055,872 $ 1,027,688
Distributions Per Unit $ 8.07 $ 8.07 $ 8.07 $ 9.00
As of As of As of As of
Dec 31, 1996 Dec 31, 1997 Dec 31, 1998 Dec 31, 1999
------------ ------------ ------------ ------------
Total Assets $1,051,247 $ 1,028,366 $ 990,763 $ 979,991
Long-Term Debt $ 0 $ 0 $ 0 $ 0
Partners' Capital $1,030,966 $ 1,006,757 $ 967,365 $ 953,854
Distributions Per Unit $ 10.00 $ 15.00 $ 15.00 $ 12.00
</TABLE>
4
<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, 1999 of $89,477 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 1999 was slightly lower than in 1998. An increase in vacancies
was primarily responsible for the decrease. The Washington Street facility
maintained an overall occupancy level of approximately 75%. During the year
occupancy ranged from 72% to 79%. Occupancy at December 31, 1999 was 72%.
After four years of relatively stable operating expenses, our costs rose 18% in
1999. Several factors were responsible. In an effort to increase occupancy we
increased our advertising budget and opened our facility seven days a week.
Additionally, we experienced higher than normal maintenance expenditures and
property taxes rose by 7%.
The registrant anticipates that rental income in 2000 will be increased over
1999 as occupancies rebound. Our market studies indicate that our rates are
competitive and future rent increases will be made on a selective basis.
Expenses for 2000 should be similar to 1999 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.
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
Registrant changed accountants due to the sale of the attest assets of Toback
CPA's to McGladrey & Pullen, L.L.P.
5
<PAGE>
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, L.L.C. 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 $1,000 per month or
6% of the actual gross cash receipts from the prior month.
The Partnership entered into an agreement with Armored Management, L.L.C. 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, L.L.C. shall receive a fixed fee of
$3,000 per month as compensation for its services. Additionally, Armored
Management, L.L.C. bills the Partnership for 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, 56, 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, 46, 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
6
<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: 12/31/99 12/31/98 12/31/97
-------- -------- --------
Direct expenses relating to None None $2000
administration of the Partnership which
were reimbursed or are to be reimbursed
to the Managing General Partner, or
affiliates thereof
General Partner's distributive share of $2659(1) $3325 $3323
cash available for distribution
Real estate commission upon the sale of None(2) None None
Partnership property payable to the
General Partner
General Partner's share of sale or None(3) None None
refinancing proceeds
- ----------
(1) Cash Available for Distribution, if any, shall be Distributed 95% to the
Limited Partners, and 5% to the General Partner.
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 80% to the
Limited Partners, and 20% to the General Partner.
7
<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, 1999 Dale D. Ulrich, one of the members of the managing
general partner, owns 56 limited partnership units constituting 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, 1999 and 1998 the General Partner was paid
the following fees:
1999 1998
------- -------
Property management $12,825 $13,219
Partnership administration $36,000 $36,000
Audit assistance $ 6,000 $ 5,000
During the year ended December 31, 1997 The Environmental Group, Inc., an
affiliate of the General Partner, received or incurred $2,000 in direct expense
reimbursement for the administration of the Partnership.
During the year ended December 31, 1997, QuestCor, Inc., an affiliate of the
General Partner, was paid $13,918 for property management fees, $30,000 for
partnership administration services, and $5,000 for assistance with the annual
audit.
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 sheets
Statements of operations
Statements of changes in partners' equity
Statements 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 Change of accountants filed February 28, 2000.
8
<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: 3/28/00 By: /s/ Carl R. Spiekerman
-------------------------------------
Carl R. Spiekerman, Member
By: /s/ Dale D. Ulrich
-------------------------------------
Dale D. Ulrich, 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 3/28/00
- ------------------------- L.L.C., general partner
Carl R. Spiekerman
/s/ Dale D. Ulrich
- ------------------------- Member of Armored Management 3/28/00
Dale D. Ulrich L.L.C., general partner
9
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1999
CONTENTS
Page
----
Independent auditors' reports 11-12
Financial statements:
Balance sheets 13
Statements of operations 14
Statements of changes in partners' equity 15
Statements of cash flows 16-17
Notes to financial statements 18-22
10
<PAGE>
To the Partners of
Armored Storage Income Investors 2
Phoenix, Arizona
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Armored Storage Income
Investors 2 (a California limited partnership) as of December 31, 1999, and the
related statement of operations, changes in partners' equity, and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present
fairly, in all material respects, the financial position of Armored Storage
Income Investors 2 as of December 31, 1999, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
February 4, 2000
Phoenix, Arizona
11
<PAGE>
To the Partners of
Armored Storage Income Investors 2
Phoenix, Arizona
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Armored Storage Income
Investors 2 (a California Limited Partnership) as of December 31, 1998 and the
related statements of operations, changes in partners' equity, and cash flows
for each of the two years ended December 31, 1998 and 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 (a California Limited Partnership) as of December 31, 1998, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
TOBACK CPAs, P.C.
Phoenix, Arizona
January 27, 1999
12
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
----------- -----------
Rental property and equipment:
Land $ 242,825 $ 242,825
Building 1,100,520 1,100,520
Furniture and fixtures 25,446 25,446
----------- -----------
1,368,791 1,368,791
Less accumulated depreciation (481,584) (444,341)
----------- -----------
887,207 924,450
Cash 89,477 63,113
Accounts receivable, net of allowance
of $2,500 and $3,200 2,500 3,200
----------- -----------
Total assets $ 979,184 $ 990,763
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 19,795 $ 18,398
Unearned rent 6,342 5,000
----------- -----------
Total liabilities 26,137 23,398
----------- -----------
Commitments (Note 3)
Partners' equity (Note 4):
General partner (8,745) (6,015)
Limited partners; 4,210 units outstanding 961,792 1,019,366
----------- -----------
953,047 1,013,351
Less amount due from former
general partner (Note 5) -- (45,986)
----------- -----------
953,047 967,365
----------- -----------
Total liabilities and partners' equity $ 979,184 $ 990,763
=========== ===========
The accompanying notes are an
integral part of these financial statements.
13
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
--------- -------- --------
Rental income $ 209,712 $216,513 $231,117
Interest income 678 1,420 1,850
--------- -------- --------
210,390 217,933 232,967
--------- -------- --------
Expenses:
Property operations 109,376 90,276 93,758
Partnership administration fees and
property management fees paid to
related parties (Note 3) 54,825 54,219 48,918
Other partnership administration fees 6,071 15,537 17,718
Depreciation 37,243 36,879 35,610
--------- -------- --------
217,515 196,911 196,004
--------- -------- --------
Net income (loss) $(7,125) $ 21,022 $ 36,963
========= ======== ========
Net income (loss) allocated to
general partner $ (71) $ 1,051 $ 1,848
Net income (loss) allocated to
limited partners (7,054) 19,971 35,115
--------- -------- --------
Net income (loss) $ (7,125) $ 21,022 $ 36,963
========= ======== ========
Net income (loss) allocated to limited
partners per limited partnership unit
(Note 4) $ (1.68) $ 4.74 $ 8.34
========= ======== ========
Distributions per limited partnership unit $ 12.00 $ 14.98 $ 14.98
========= ======== ========
Number of limited partnership units
outstanding 4,210 4,210 4,210
========= ======== ========
The accompanying notes are an
integral part of these financial statements.
14
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Amount due
from former
general General Limited
partner partner partners Total
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
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
Distributions to partners -- (3,324) (63,150) (66,474)
Payments received from former
general partner 6,060 -- -- 6,060
Net income -- 1,051 19,971 21,022
-------- -------- ----------- -----------
Balance, December 31, 1998 (45,986) (6,015) 1,019,366 967,365
Distributions to partners (2,659) (50,520) (53,179)
Payments received from former
general partner 45,986 45,986
Net loss (71) (7,054) (7,125)
-------- -------- ----------- -----------
Balance, December 31, 1999 $ -- $ (8,745) $ 961,792 $ 953,047
======== ======== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
15
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 211,754 $ 215,013 $ 231,017
Cash paid to suppliers and service providers (178,875) (157,243) (160,066)
Interest received 678 1,420 1,850
--------- --------- ---------
Net cash provided by operating activities 33,557 59,190 72,801
--------- --------- ---------
Cash flows from investing activities:
Purchase of rental property and equipment -- (35,166) --
--------- --------- ---------
Cash flows from financing activities:
Distributions to limited partners (50,520) (63,150) (63,150)
Distributions to general partner (2,659) (3,324) (3,325)
Payments received on due from former general partner 45,986 6,060 5,303
--------- --------- ---------
Net cash used in financing activities (7,193) (60,414) (61,172)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents 26,364 (36,390) 11,629
Cash:
Beginning 63,113 99,503 87,874
--------- --------- ---------
Ending $ 89,477 $ 63,113 $ 99,503
========= ========= =========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
16
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
-------- -------- --------
Reconciliation of net income (loss) to net
cash provided by operating activities
Net income (loss) $ (7,125) $ 21,022 $ 36,963
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 37,243 36,879 35,610
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 700 (500) (1,100)
Increase in accounts payable and
accrued expenses 1,397 2,789 328
(Decrease) increase in unearned rent (1,342) (1,000) 1,000
-------- -------- --------
Net cash provided by operating
activities $ 33,557 $ 59,190 $ 72,801
======== ======== ========
The accompanying notes are an
integral part of these financial statements.
17
<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:
FAIR VALUE:
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments.
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.
18
<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.
Differences between the tax bases and reported amounts of the Partnership
assets and liabilities result from a difference in accumulated depreciation
of approximately $57,000 at December 31, 1999 and capitalized syndication
costs for tax purposes of approximately $280,000.
3. COMMITMENTS AND RELATED PARTY TRANSACTIONS:
Prior to January 1, 1998, the Partnership operated under 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. On January 1, 1998, the Partnership
entered into an agreement with similar terms for these services with
Armored Management, L.L.C. The term of the agreement is for one year
through December 31, 1999.
Subsequent to year end, on January 1, 2000, the Company entered into a new
management agreement with Armored Management, LLC. The term of the
agreement is for one year through December 31, 2000 and shall continue on a
month-to-month basis unless either party terminates the agreement.
19
<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 contracted 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 current
year agreement provided for payment by the Partnership to Armored
Management, L.L.C. of $3,000 per month as compensation for its services.
Additionally, the Partnership pays Armored Management, L.L.C. $5,000 per
year for providing assistance in the annual Partnership audit. The term of
the agreement is for one year through December 31, 1999 and shall continue
on a month-to-month basis unless either party terminates the agreement.
Subsequent to year end, on January 1, 2000, the Company entered into a new
management agreement with Armored Management, LLC. The term of the
agreement is for one year through December 31, 2000 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, 1999, 1998 and 1997:
1999 1998 1997
------- ------- -------
Property management $13,000 $13,000 $14,000
Partnership administration 36,000 36,000 30,000
Audit assistance 6,000 5,000 5,000
During the year ended December 31, 1997, the Partnership paid an affiliate
of the General Partner $2,500 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:
20
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PARTNERS' EQUITY, Continued:
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%).
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.
21
<PAGE>
ARMORED STORAGE INCOME INVESTORS 2
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PARTNERS' EQUITY, Continued:
SALE OR REFINANCING PROCEEDS:
Anysale 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.
5. DUE FROM FORMER GENERAL PARTNER:
Due from former General Partner (Armored Storage, Ltd.) represented 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 totaling 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 1999, the former
general partner paid off the remaining balance outstanding.
6. PARTNERSHIP ADMINISTRATION AND PROPERTY OPERATIONS:
Included in other partnership administration and property operations are
the following expenses:
1999 1998 1997
------- ------- -------
Other partnership administration:
Accounting $14,840 $13,835 $13,275
Other 1,231 1,702 4,443
Property operations:
Advertising 5,802 2,092 18,145
Insurance 2,448 2,494 2,369
Property taxes 38,871 36,183 30,460
Repairs and maintenance 10,048 5,756 2,933
Utilities 6,996 7,119 6,616
Wages and payroll taxes 34,574 26,330 23,774
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 89,477
<SECURITIES> 0
<RECEIVABLES> 5,000
<ALLOWANCES> 2,500
<INVENTORY> 0
<CURRENT-ASSETS> 91,977
<PP&E> 1,368,791
<DEPRECIATION> 481,584
<TOTAL-ASSETS> 979,184
<CURRENT-LIABILITIES> 26,137
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 953,047
<TOTAL-LIABILITY-AND-EQUITY> 979,184
<SALES> 0
<TOTAL-REVENUES> 210,390
<CGS> 0
<TOTAL-COSTS> 158,637
<OTHER-EXPENSES> 58,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,125)
<EPS-BASIC> (1.68)
<EPS-DILUTED> (1.68)
</TABLE>
