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, 1999 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) 4425 N. 24th Street, Suite 225 Phoenix, Arizona 85016 -------------------------------------------------------- (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, 1999 1998 ----------- ----------- ASSETS Property Land $ 242,825 $ 242,825 Buildings 1,100,520 1,100,520 Furniture and fixtures 25,446 25,446 ----------- ----------- 1,368,791 1,368,791 Less accumulated depreciation 471,941 434,462 ----------- ----------- 896,850 934,329 Cash and cash equivalents 50,772 54,196 Other assets 3,200 2,700 ----------- ----------- $ 950,822 $ 991,225 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable 34,282 33,479 Commitments (Note 3) Partners' capital General partner (6,030) (3,035) Limited partners 968,556 1,012,827 Less amount due from general partner (45,986) (52,046) ----------- ----------- $ 950,822 $ 991,225 =========== =========== See notes to financial statements. 2 ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership STATEMENT OF OPERATIONS (unaudited) For the Year For the Year For the Nine Months Ended Ended Ended ------------------------------ ------------ ------------ September 30, September 30, December 31, December 31, 1999 1998 1998 1997 ------------- ------------- ------------ ------------ Income Rental $ 161,417 $161,817 $216,513 $231,117 Interest 587 1,220 1,420 1,854 --------- -------- -------- -------- 162,004 163,037 217,933 232,967 --------- -------- -------- -------- Expenses Property Operations 89,105 74,745 103,495 107,676 Administration 45,604 47,154 56,537 52,718 Amortization & Depreciation 27,600 27,000 36,879 35,610 --------- -------- -------- -------- 162,309 148,899 196,911 196,004 --------- -------- -------- -------- Net Income (loss) $ (305) $ 14,138 $ 21,022 $ 36,963 ========= ======== ======== ======== See notes to financial statements. 3 ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership STATEMENTS OF CASH FLOW (unaudited) For the Nine Months Ended ---------------------------- September 30, September 30, 1999 1999 ------------ ------------- Cash Flows From Operating Activities Cash received from customers $ 161,417 $ 161,817 Cash paid to suppliers (123,825) (110,029) Interest received 587 1,220 --------- --------- Net cash provided by operating activities $ 38,179 $ 53,008 --------- --------- Cash Flows From Investing Activities Capital improvements $ -- $ (35,165) --------- --------- Net cash used in investing activities $ -- $ (35,165) --------- --------- Cash Flows From Financing Activities Distribution to partners $ (50,520) $ (63,150) --------- --------- Net cash used in financing activities $ (50,520) $ (63,150) --------- --------- Increase (decrease) in cash $ (12,341) $ (45,307) Cash and cash equivalents: Beginning 63,113 99,503 --------- --------- Ending $ 50,772 $ 54,196 ========= ========= Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities: Net income (loss) $ (305) $ 14,138 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 27,600 27,000 Change in assets and liabilities: Increase (decrease) in accounts payable 10,884 11,870 --------- --------- Net cash provided by operating activities $ 38,179 $ 53,008 ========= ========= See Notes to Financial Statements. 4 ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership NOTES OF FINANCIAL STATEMENTS September 30, 1999 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. 5 ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership NOTES OF FINANCIAL STATEMENTS September 30, 1999 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, 1999 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 Armored Management, LLC on January 1, 1999, 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 Armored Management, LLC 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 $3,000 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. 6 ARMORED STORAGE INCOME INVESTORS 2, a California Limited Partnership NOTES OF FINANCIAL STATEMENTS September 30, 1999 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, 1999 the balance due from former General Partner was $45,986. NOTE 5 IMPACT OF YEAR 2000 The Company's assessment of its Year 2000 issues is complete. The Company has determined that there is likely to be no material adverse consequence of Year 2000 issues on the Company's business, results of operations, or financial condition. The Company has few information technology or non-information technology aspects which may be affected by Year 2000; those that may be affected are the computing system used to administer operations. Investigation and queries of the software and hardware suppliers have determined by written statements or other assurances that they are Year 2000 compliant. The Company has no major supplier, vendor, or customers which is likely to materially affect the Company if it is affected by the Year 2000 problem. The Company has determined that it is at little risk of material disruption of its business due to Year 2000 issues. In the event the computing system fails, the Company will purchase and replace the necessary hardware and software for critical systems and contact the software and hardware suppliers to replace, at their cost, the failed components for remaining computers. Costs for the Year 2000 compliance have been for investigation only and no remedial actions have or will be taken. The costs have been minimal and are not material to the financial condition of the Company. 7 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 $161,417 during the first nine months of 1999 compared to $161,817 during the first nine months of 1998. The facility reached an occupancy level of 77% at the end of September, 1999, down from 83% a year ago. Operating expenses through September 30, 1999 were $89,105 compared to $74,745 for 1998. Increases in property taxes, salaries, and repairs were responsible for the increases. Administrative expenses for 1999 were $45,604 opposed to $47,154 in 1998. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1999, the Partnership held cash and cash equivalents totaling $50,772 as compared to $54,196 for the corresponding quarter of 1998. 8 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: 11/8/99 ---------------------------