SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: Commission File Number: September 30, 1996 33-2732 - ------------------ ----------------------- ARMORED STORAGE INCOME INVESTORS 2 ------------------------------------------------------ (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 Street, Suite 108 Phoenix, Arizona 85012 -------------------------------------------------------- (Address of and zip code of principal executive offices) (602) 230-1655 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership PART I FINANCIAL INFORMATION --------------------- ITEM 1 FINANCIAL STATEMENTS PAGE - ---------------------------- ---- Balance Sheets 3 Statements of Operations 4 Statements of Cash Flows 5 Notes to Unaudited Financial Statements 6 ARMORED STORAGE INCOME INVESTORS 2 a California Limited Partnership BALANCE SHEETS (Unaudited) September 30, September 30, 1996 1995 ------------- ------------- ASSETS Property Land $ 242,825 $ 242,825 Buildings 1,068,145 1,059,970 Furniture and fixtures 22,656 22,655 ----------- ----------- 1,333,626 1,325,450 Less accumulated depreciation 363,717 327,241 ----------- ----------- 969,909 998,209 Cash and cash equivalents 55,634 49,109 Other assets 2,400 5,700 ----------- ----------- $ 1,027,943 $ 1,053,018 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable 12,671 27,174 Commitments (Note 3) Partners' capital General partner (3,050) (3,984) Limited partners 1,075,671 1,090,965 Less amount due from general partner (57,349) (61,137) ----------- ----------- $ 1,027,943 $ 1,053,018 =========== =========== See notes to financial statements. ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership STATEMENT OF OPERATIONS (unaudited) For the Nine Months For the Year For the Year Ended Ended Ended -------------------- ------------ ------------ September September December December 30, 1996 30, 1995 31, 1995 31, 1994 --------- --------- -------- -------- Income Rental $167,069 $ 143,306 $ 190,029 $ 191,360 Interest 1,126 766 974 724 -------- --------- --------- --------- 168,195 144,072 191,603 192,084 -------- --------- --------- --------- Expenses Property Operations 72,660 70,644 96,143 76,089 Administration 41,858 39,477 50,148 50,649 Amortization & Depreciation 27,357 26,094 35,213 37,237 -------- --------- --------- --------- 141,875 136,215 181,514 163,975 -------- --------- --------- --------- Net Income (loss) $ 26,320 $ 7,857 $ 10,089 $ 28,109 ======== ========== ========= ========= See notes to financial statements. ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership STATEMENTS OF CASH FLOW (unaudited) For the Nine Months Ended -------------------------------------- September 30, 1996 September 30, 1995 ------------------ ------------------ Cash Flows From Operating Activities Cash received from customers $ 167,069 $ 143,306 Cash paid to suppliers (121,064) (97,415) Interest received 1,126 $ 766 --------- --------- Net cash provided by operating activities $ 47,131 $ 46,657 --------- --------- Cash Flows From Investing Activities Property additions $ (8,175) $ (8,500) --------- --------- Net cash used in investing activities $ (8,175) $ (8,500) --------- --------- Cash Flows From Financing Activities Distributions to partners $ (42,908) $ (37,887) Payment on general partner receivable 3,788 -0- --------- --------- Net cash used in financing activities $ (39,120) $ (37,887) --------- --------- Increase (decrease) in cash $ (164) $ 270 Cash and cash equivalents: Beginning 55,798 48,839 --------- --------- Ending $ 55,634 $ 49,109 ========= ========= Reconciliation Of Net Income (Loss) To Net Cash Provided By Operating Activities: Net income (loss) $ 26,320 $ 7,857 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 27,357 26,094 Change in assets and liabilities: Increase (decrease) in accounts payable (6,546) (12,706) --------- --------- Net cash provided by operating activities $ 47,131 $ 46,657 ========= ========= See Notes to Financial Statements. ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership NOTES OF FINANCIAL STATEMENTS September 30, 1996 NOTE 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. The Partnership was authorized to issue a total of 20,000 units for a total offering of $10,000,000. Sales of the Partnership units commenced in April of 1986. 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. NOTE 2: Summary of Significant Accounting Policies Property and equipment: Property and equipment is stated at cost. Depreciation is computed principally by the straight-line method over the following estimated useful lives: Years ----- Building 30 Furniture and Fixtures 5 Interest, real estate taxes and other costs including acquisition fees related directly to properties under long-term development contracts were capitalized. Costs were not capitalized beyond net realizable value. Costs related to operating properties are expensed as incurred. Rental income: The Partnership receives rental income from its existing self-storage facility. All rental agreements are for month-to-month tenancy. Rental income is recognized on the accrual basis in accordance with generally accepted accounting principles. Income taxes: The Partnership does not record a provision for income taxes, since Federal and state income tax regulations provide that any taxes on income of a Partnership are payable by the partners as individuals. The Partnership's tax returns are prepared on the accrual basis. Syndication fees: Syndication fees are those expenses incurred in the issuing and marketing of partnership interests. These expenses include broker and registration fees, legal fees, tax and accounting fees, and printing costs. These fees are not amortizable and are presented as a reduction in partners' capital in the financial statements. ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership NOTES OF FINANCIAL STATEMENTS September 30, 1996 NOTE 2. Summary of Significant Accounting Policies, continued Organization costs: Organization costs which are included in other assets consist of legal fees incident to the creation of the Partnership, accounting fees for establishing an accounting system and filing fees. These costs are being amortized using the straight-line method over 60 months. Cash and cash equivalents: For purposes of reporting cash flows, the Partnership considers all money market funds to be cash equivalents. Unaudited financial statements: The financial statements for the nine months ended September 30, 1996 are unaudited, however, in management's opinion they include all adjustments necessary for a fair statement of the results of operations for such interim periods. The interim period results of operations are not necessarily indicative of results for a full year. NOTE 3: Commitments The partnership has the following commitments: (a) The Partnership entered into an agreement with QuestCor, Inc. on November 1, 1989, to manage the Partnership's self-storage facility. The term of the agreement is for one year and shall be renewed from year to year unless and until either party terminates the agreement. The agreement provides that the manager shall receive, as compensation for services, 6% of the actual gross cash receipts. (b) The Partnership also entered into an agreement with QuestCor, Inc. for the management of the Partnership's accounting, securities reporting, database and investor relations activities. The term of the agreement is for one year and shall be renewed from year to year unless and until either party terminates the agreement. The agreement provides for a flat fee of $2,500 per month as compensation for administrative services. (c) The Partnership reimburses the General Partner for the costs of goods and materials used by and for the Partnership and administrative services necessary to the operation of the Partnership. ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership NOTES OF FINANCIAL STATEMENTS September 30, 1996 NOTE 4: Due From Former General Partner Due from former General Partner represents a receivable to 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 with respect to the total amount of limited partners capital raised. On April 3, 1987 the offering was terminated. Based on actual units sold through the date of termination, it was determined by the General Partner that too much had been paid to the former Managing General Partner. The excess, which amounted to $93,438, has been reclassified to due from former General Partner. At September 30, 1996 the balance due from former General Partner was $57,349. PART I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations The Partnership has one operating facility located in Phoenix, Arizona. The Partnership's facility generated an aggregate gross operating revenue of $167,069 during the first nine months of 1996 compared to $143,306 during the first nine months of 1995. The facility reached an occupancy level of 94% at the end of September, 1996, down from 98% a year ago. Operating expenses through September 30, 1996 were $72,660 compared to $70,644 for 1995. Administrative expenses for 1996 were $41,858 opposed to $39,477 in 1995. Financial results reflect a pickup in Arizona economy. Occupancies have ranged from 92% to 98% over the past year with summer typically showing higher rental activity. The Partnership continues to upgrade the property and has increased rental rates as a result. Both income and expenses are expected to remain fairly stable throughout 1996 and overall results from operations are projected to be significantly improved over 1995. Liquidity and Capital Resources As of September 30, 1996, the Partnership held cash and cash equivalents totaling $55,634 as compared to $49,109 for the corresponding quarter of 1995. PART II OTHER INFORMATION ----------------- Item 1: Legal Proceedings: - ------- ------------------ Not applicable. Item 2: Changes in securities: - ------- ---------------------- Not applicable. Item 3: Defaults Upon Senior Securities: - ------- -------------------------------- Not applicable. Item 4: Submission of Matters to a Vote of Security Holders: - ------- ---------------------------------------------------- Not applicable. Item 5: Other information: - ------- ------------------ Not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARMORED STORAGE INCOME INVESTORS 2 (Registrant) By: Armored Management L.L.C. Its General Partner By: /s/ Dale D. Ulrich -------------------- Dale D. Ulrich, Member Dated: 11/8/96 ------------