10-Q 1 bli2q13.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2013 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______. Commission File No. 0-16856 BIGGEST LITTLE INVESTMENTS L.P. ---------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3368726 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3702 S. VIRGINIA ST. UNIT G2 RENO, NEVADA 89502 ----------------------------- ---------- (Address of principal (Zip code) executive offices) (775) 825-3355 ----------------------------- Registrant's telephone number ---------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer YES [ ] NO [X] Accelerated filer YES [ ] NO [X] Non-accelerated filer (Do not check if a smaller reporting company) YES [ ] NO [X] Smaller reporting company YES [X] NO [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS BIGGEST LITTLE INVESTMENTS L.P. BALANCE SHEETS
JUNE 30, DECEMBER 31, 2013 2012 (UNAUDITED) ------------- ------------ ASSETS Current Assets Cash and cash equivalents................... $ 8,030,150 $10,069,125 Restricted cash............................. 571,145 - Short-term investments - CDs................ 249,970 249,970 Trade and other receivables, net............ 45,379 8,301 Available-for-sale securities............... 5,139,610 3,021,934 Prepaid expense............................. 2,706 352 ----------- ----------- Total Current Assets...................... 14,038,960 13,349,682 ----------- ----------- Long-Term Assets Property, plant and equipment, net.......... 10,618,312 10,824,798 Construction in progress.................... 38,522 - ----------- ----------- Total Long-Term Assets.................... 10,656,834 10,824,798 ----------- ----------- Total Assets............................. $24,695,794 $24,174,480 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities Accounts payable, prepaid rent, accrued expenses and unclaimed property........ $ 115,547 $ 37,749 Related party accounts payable........... 138,321 85,601 Tenant deposits.......................... 26,313 23,699 ----------- ----------- Total Liabilities........................... 280,181 147,049 ----------- ----------- Commitments and Contingencies Partners' Equity Limited partners' equity (168,345 units issued and outstanding at 6/30/13; 170,390 at 12/31/12)................... 22,904,482 23,283,532 Prepaid redemption....................... (41,496) (196,025) Accumulated other comprehensive income... 918,677 301,714 General partner's equity................. 633,950 638,210 ----------- ----------- Total Partners' Equity...................... 24,415,613 24,027,431 ----------- ----------- Total Liabilities and Partners' Equity........ $24,695,794 $24,174,480 =========== ===========
The accompanying Notes are an integral part of these Financial Statements. -2- BIGGEST LITTLE INVESTMENTS L.P. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED -------------------------- ---------------- -------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2013 2012 2013 2012 ------------ ------------ ----------- --- -------- Revenues Rental revenues.......................... $ 100,384 $ 91,382 $ 187,418 $ 185,788 Related party rental revenues............ 106,147 110,333 212,295 220,667 Other revenues........................... 18,101 13,386 24,081 26,013 ----------- ----------- ----------- -- -------- Total revenues........................ 224,632 215,101 423,794 432,468 ----------- ----------- ----------- -- -------- Costs and expenses Operating expenses....................... 155,517 117,942 266,537 235,021 General and administrative............... 121,698 34,843 163,016 86,737 Depreciation............................. 103,243 96,764 206,487 193,528 Management fees.......................... 146,498 15,967 158,279 32,569 ----------- ----------- ----------- -- -------- Total costs and expenses.............. 526,956 265,516 794,319 547,855 ----------- ----------- ----------- -- -------- Loss from operations..................... (302,324) (50,415) (370,525) (115,387) Other Income and Expenses Gain on sale of securities............... 191,123 4,462 484,272 20,433 Interest income.......................... 4,066 127,132 9,335 254,360 ----------- ----------- ----------- -- -------- Total Other Income 195,189 131,594 493,607 274,793 ----------- ----------- ----------- -- -------- Net (loss) income........................ $ (107,135) $ 81,179 $ 123,082 $ 159,406 =========== =========== =========== ========== Other Comprehensive Income Unrealized gain (loss) from securities.. $ 218,192 $ (308,444) $ 616,963 $(118,689) ----------- ----------- ----------- -- -------- Comprehensive Income (Loss)............ $ 111,057 $ (227,265) $ 740,045 $ 40,717 =========== =========== =========== ========== Net (loss) income attributable to: Limited partners......................... $ (104,456) $ 79,149 $ 120,005 $ 155,420 General partner.......................... (2,679) 2,030 3,077 3,986 ----------- ----------- ----------- -- -------- $ (107,135) $ 81,179 $ 123,082 $ 159,406 =========== =========== =========== ========== Net (loss) income per unit of limited partnership interest (168,345 and 170,390 average units outstanding for the three and six months ended June 30, 2013 and 2012, respectively)............. $ (0.62) $ 0.46 $ 0.71 $ 0.91 =========== =========== =========== ==========
The accompanying Notes are an integral part of these Financial Statements. -3- BIGGEST LITTLE INVESTMENTS L.P. STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED ---------------------------- June 30, June 30, 2013 2012 ------------- ------------- Cash flows from operating activities: Net income.................................... $ 123,082 $ 159,406 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ............................... 206,487 193,528 Gain on sale of securities.................. (484,272) (20,433) Changes in assets and liabilities: Increase in receivables..................... (37,078) (3,463) (Increase) decrease in prepaid expense...... (2,354) 2,204 Increase in accounts payable, accrued expenses, and other liabilities............ 80,412 123,906 Increase in short-term investments - CD..... - (1,247) Increase in related party payables.......... 52,720 - ------------- ------------- Net cash (used in) provided by operating activities.................................. (61,003) 453,901 ------------- ------------- Cash flows from investing activities: Cash used for the purchase of securities...... (3,002,825) (262,620) Cash received from the sale of securities..... 1,986,381 215,084 Cash received from Grand Falls note receivable - 126,000 Cash restricted for Popeye's construction..... (571,145) - Cash used for construction in process......... (38,522) - ------------- ------------- Net cash (used in) provided by investing Activities............................... (1,626,111) 78,464 ------------- ------------- Cash flows from financing activities: Cash used for payment of redemption of limited partnership units................... (16,879) (93,670) Cash used for prepayment of redemption of limited partnership units................... (41,496) (103,634) Cash used for distribution.................... (293,486) (349,258) ------------- ------------- Net cash used in financing activities...... (351,861) (546,562) ------------- ------------- Net decrease in cash and cash equivalents....... (2,038,975) (14,197) Cash and cash equivalents, beginning of period.. 10,069,125 5,646,046 ------------- ------------- Cash and cash equivalents, end of period........ $ 8,030,150 $ 5,631,849 ============= ============= Non-Cash Retired prepaid redemption................ $ 196,025 $ 246,280 Unrealized gain/loss on securities........ $ 616,963 $ (118,689)
The accompanying Notes are an integral part of these Financial Statements. -4- BIGGEST LITTLE INVESTMENTS L.P. NOTES TO FINANCIAL STATEMENTS NOTE 1. INTERIM FINANCIAL INFORMATION Pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America has been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the disclosures made are adequate to make the information not misleading. The accompanying financial statements, footnotes and discussions should be read in conjunction with the financial statements, related footnotes and discussions contained in the Biggest Little Investments, L.P. (the "Partnership") Annual Report on Form 10-K for the year ended December 31, 2012. The financial information contained herein is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial information have been included. All adjustments are of a normal recurring nature. The balance sheet at December 31, 2012, was derived from audited financial statements at such date. The results of operations for the three and six months ended June 30, 2013 and 2012 are not necessarily indicative of the results to be expected for the full year or for any other period. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Property and Provision for Impairment Property is stated at cost, less accumulated depreciation. Since acquisition, property has been depreciated principally on a straight-line basis over the estimated service lives as follows: Land improvements ........... 5 years Site work ................... 15 years Buildings ................... 30 years Building improvements ....... 5-30 years In accordance with the Accounting Standards Codification ("ASC") Section 360, the Partnership evaluates the carrying value of its long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable from related future undiscounted cash flows. As of June 30, 2013, the Partnership's only operating asset was the Sierra Marketplace Shopping Center located in Reno, Nevada (the "Sierra Property") and the Partnership determined that none of its long-lived assets were impaired as of such date. Construction-in-Progress Construction-in-progress is stated at cost and not depreciated. Depreciation on capital work-in-progress commences when the assets are ready for their intended use. Allowance for Doubtful Accounts The Partnership monitors its accounts receivable balances on a monthly basis to ensure they are collectible. On a quarterly basis, the Partnership uses its historical experience to determine its accounts receivable reserve. The Partnership's allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Partnership evaluates specific accounts where it has information that the customer may have an inability to meet its financial obligations. In these cases, management uses judgment, based upon the best available facts and circumstances, and records a specific reserve for that customer against -5- amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. The Partnership also establishes a general reserve based upon a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Partnership's estimate of the recoverability of amounts due the Partnership could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known. As of June 30, 2013 and 2012, the Partnership did not have any reserve for bad debt. Cash and Cash Equivalents For the purpose of the statements of cash flows, the Partnership considers all short-term investments which have original maturities of three months or less to be cash equivalents. There were no cash equivalents as of June 30, 2013 or December 31, 2012. Concentration of Credit Risk The Partnership maintains cash balances at institutions insured up to $250,000 by the Federal Deposit Insurance Corporation. Balances in excess of amounts required for operations are usually invested in savings, money market accounts and certificates of deposit. Cash balances exceeded these insured levels during the period. No losses have occurred or are expected due to this risk. Revenue Recognition Rental revenues are based on lease terms and recorded as income when earned and when they can be reasonably estimated. Rent increases are generally based on the Consumer Price Index. Leases generally require tenants to reimburse the Partnership for certain operating expenses applicable to their leased premises. These costs and reimbursements have been included in operating expenses and rental income, respectively. Investments Investments are classified as trading or available-for-sale. Trading investments are recorded at fair value with unrealized gains and losses reflected in the statements of operations. Available-for-sale investments' unrealized gains and losses are included as a component of accumulated other comprehensive income in the accompanying statements of operations and comprehensive income. Interest on investments is recognized as income when earned. Realized gains and losses on investments are included in Other Income and Expenses in the accompanying statements of operations and comprehensive income. As of June 30, 2013 and December 31, 2012, all of the Partnership's investments were classified as available-for-sale. Long-term Notes Receivable Long-term notes receivable bear interest and are due upon maturity. Interest income associated with these notes receivable is reflected in the accompanying statements of operations and comprehensive income under the caption "Interest Income." Fair Value of Financial Instruments The Partnership uses the following hierarchy to prioritize the inputs used in measuring fair value in accordance with ASC Section 820: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities; -6- Level 2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; Level 3 Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. Financial instruments including cash and cash equivalents, trade and notes receivable, securities, accounts payable and accrued expenses are carried in the financial statements at amounts that approximated fair value at June 30, 2013 and December 31, 2012. See "Note 3. Fair Value Measurements." Net Income Per Unit of Limited Partnership Interest Net income per unit of limited partnership interest (each individually, a "Unit" and, together, the "Units") is computed based upon the average number of Units outstanding (168,345 for the six months ended June 30, 2013, and 170,390 for the six months ended June 30, 2012) during the period then ended. On August 31, 2009, the Partnership initiated an offer enabling the Partnership's limited partners to sell their Units back to the Partnership (the "Redemption Offer"). The Partnership may repurchase whole Units only, at a price reasonably determined by the general partner of the Partnership (the "General Partner") based on market considerations. Units repurchased by the Partnership under the Redemption Offer will be canceled, and will have the status of authorized but unissued Units. The Partnership's obligation to repurchase any Units under the Redemption Offer is conditioned upon it having sufficient funds available to complete the repurchase. The Partnership will use any operating funds as the General Partner, in its sole discretion, may reserve for the purpose of funding the Redemption Offer. On August 24, 2012, the Redemption Offer was extended until August 31, 2013, subject to the right of the General Partner to suspend, terminate, modify or extend the term of the Redemption Offer in its sole discretion. On June 6, 2013, the Redemption Offer was suspended pending final response from the SEC to a preliminary filing by the Partnership on Schedule 14C and Schedule 13E-3 whereby the Partnership was seeking to effect a reverse split of the Partnership's outstanding Units at a ratio of one-for-100, with holders of fractional Units receiving cash for their Units, for the purpose of reducing the number of holders of Units in order for the Partnership to become a privately held entity (the "Reverse Split"). On August 8, 2013, the SEC approved the Schedule 14C and Schedule 13e-3 and the Partnership filed a definitive information statement to be distributed to all holders of Units, detailing the final terms of the Reverse Split. As a result of the Reverse Split, the Partnership's limited partners owning fractional shares following the reverse split will be paid a $120-per- Unit cash consideration based on the number of Units held before the effective date, and will no longer be limited partners of the Partnership. Subsequently, the number of limited partners of the Partnership will fall below 300, which will make the Partnership eligible to terminate the registration of its Units under the Securities Exchange Act of 1934, as amended, and, accordingly, the Partnership will no longer be subject to the reporting requirements of the federal securities laws (see "Recent Events" under "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"). The General Partner terminated the Redemption Offer on August 9, 2013. An aggregate of 12,704 Units were repurchased by the Partnership pursuant to the Redemption Offer at an approximate average price of $103.26 per Unit. Income Taxes Partnership earnings are allocated between the partners in accordance with each partner's ownership interest and are taxed individually and not at the partnership level. Correspondingly, no provisions for federal, state and local income taxes are included in the financial statements. The income tax returns of the Partnership are subject to examination by federal, state and local taxing authorities. Such examinations could result in adjustments to Partnership income, which changes could affect the tax liability of the individual partners. -7- Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Partnership evaluates its estimates, including those related to bad debts, contingencies, litigation and valuation of the real estate. The Partnership bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. NOTE 3. FAIR VALUE MEASUREMENTS The Partnership holds certain financial assets which are required to be measured at fair value on a recurring basis in accordance with ASC Section 820. Valuation of Financial Instruments measured on a recurring basis by hierarchy levels as of June 30, 2013: Fair Value Measurement --------------------------------- Level 1 Level 2 Level 3 Total ---------- --------- --------- ---------- Stock Securities $5,779,399 $ - $ - $5,779,399 Short Option Securities (639,789) - - (639,789) Short-Term Investments - CDs 249,970 - - 249,970 ---------- --------- --------- ---------- Total $5,389,581 $ - $ - $5,389,581 ========== ========= ========= ========== Valuation of Financial Instruments measured on a recurring basis by hierarchy levels as of December 31, 2012: Fair Value Measurement --------------------------------- Level 1 Level 2 Level 3 Total ---------- --------- --------- ---------- Stock Securities $3,529,590 $ - $ - $3,529,590 Short Option Securities (507,656) - - (507,656) Short-Term Investments - CDs 249,970 - - 249,970 ---------- --------- --------- ---------- Total $3,271,904 $ - $ - $3,271,904 ========== ========= ========= ========== The Partnership had an unrealized gain from securities of $918,677 as of June 30, 2013, and had an unrealized loss from securities of $291,800 as of June 30, 2012. During the six months ended June 30, 2013 and 2012, the Partnership disposed of securities resulting in realized gains of $484,272 and $20,433, respectively, using the first-in, first-out method. NOTE 4. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES Beginning in April 2007, affiliates of the General Partner began leasing office space at the Sierra Property and pay monthly rent of $2,408. The General Partner uses a portion of this office space and participates in such rent payments. -8- In 2004, the Partnership began renovation efforts in an attempt to maximize the financial viability of the Sierra Property (the "Renovation"). As part of the Renovation, a portion of the shopping center previously occupied by an anchor tenant was demolished for the purpose of creating in its place a new driveway (and traffic signal) directly between the Sierra Property and a hotel casino property located next to the Sierra Property (the "Adjacent Property"). The Adjacent Property entered into a lease with the Partnership for a section of the Sierra Property (including the new driveway). The Adjacent Property has a minimum lease term of 15 years at an initial monthly rent of $25,000, subject to increases every 60 months based on the Consumer Price Index. Such an increase became effective on September 30, 2009, and the Adjacent Property now pays monthly rent of approximately $28,400. The Adjacent Property also uses part of the common area of the Sierra Property and pays its proportionate share of the common area expense of the Sierra Property. The Adjacent Property has the option to renew the lease for three five-year terms and, at the end of the extension periods, has the option to purchase the leased section of the Sierra Property at a price to be determined based on an MAI Appraisal. In addition to the driveway, the Adjacent Property also leases approximately 6,900 square feet of storage space at the Sierra Property and pays rent of approximately $3,450 per month for such storage space. Ben Farahi, the manager of the General Partner, was, until May 26, 2006, Co-Chairman of the Board, Chief Financial Officer, Secretary, and Treasurer of Monarch Casino & Resort, Inc. ("Monarch"), the owner of the Adjacent Property. He owned approximately 11.9% of Monarch's outstanding common stock as of June 30, 2013. Accounting rules define transactions with related parties as transactions which are not arm's-length in nature and, therefore, may not represent fair market value. Compensation of the General Partner The General Partner is the manager of the Sierra Property. The General Partner received $47,919 and $32,569 for the six months ended June 30, 2013 and 2012, respectively, for such management services; included in these amounts is three percent of the monthly interest earned on the Partnership's cash in savings and money market accounts, which the Partnership began paying to the General Partner in 2006. Also, pursuant to the Partnership's Second Amended and Restated Agreement of Limited Partnership (the "Amended LP Agreement"), the General Partner is entitled to receive 2.5% of the Partnership's income, loss, capital and distributions, including, without limitation, the Partnership's cash flow from operations, disposition proceeds and net sale or refinancing proceeds. Accordingly, the General Partner was allocated net income of $3,077 for the six months ended June 30, 2013 and net income of $3,986 for the six months ended June 30, 2012. On April 9, 2013, the Partnership issued a cash distribution of $1.70 per Unit on the outstanding limited partnership Units of the Partnership to limited partners of record at the close of business on March 28, 2013. The General Partner received $7,337 from this distribution in its capacity as the general partner. On May 28, 2013, the Partnership entered into a 20-year lease with a franchisee of Popeye's Louisiana Kitchen, a national fast food chain ("Popeye's"). The Partnership is contributing approximately $571,000 to the construction cost of a new building that will be occupied by Popeye's, plus approximately $100,000 for fees, utility improvements and grading. Pursuant to the Amended LP Agreement, the General Partner earned a development fee in the amount of $110,360 for its services in connection with securing the Popeye's lease and the development of assets related to the Popeye's lease. -9- Also pursuant to the Amended LP Agreement, the General Partner may receive mortgage placement fees for services rendered in connection with the Partnership's mortgage loans. These fees may not exceed such compensation customarily charged in arm's-length transactions by others rendering similar services as an ongoing public activity in the same geographical location for comparable mortgage loans. The General Partner is entitled to certain fees for compensation of other services rendered as well. The General Partner did not earn any mortgage placement or other fees during the six months ended June 30, 2013 or 2012. NOTE 5. REAL ESTATE The Partnership's real estate is summarized as follows: June 30, 2013 December 31, 2012 ------------------ ----------------- Land............................ $ 3,198,574 $ 3,198,574 Less land taken by condemnation. (117,483) (117,483) ------------------ ----------------- 3,081,091 3,081,091 ------------------ ----------------- Building and improvements....... 12,069,070 12,069,070 ------------------ ----------------- 15,150,161 15,150,161 ------------------ ----------------- Accumulated depreciation........ (4,531,849) (4,325,363) ------------------ ----------------- $ 10,618,312 $ 10,824,798 ================== ================= NOTE 6. NOTES RECEIVABLE On December 17, 2010, the Partnership participated in first and second senior credit facilities with a group led by a major bank in the aggregate amount of $75 million (the "Credit Facility") to a new casino in Grand Falls, Iowa (the "Borrower"). The Partnership's commitment to the Credit Facility was $3 million under the first lien senior credit facility consisting of a $40 million term loan and a $10 million revolving loan (the "First Facility"), and $1.5 million under the second lien senior credit facility consisting of a $25 million term loan (the "Second Facility"). The Credit Facility may be utilized by the Borrower for a portion of the development and construction costs of the casino (the "Project"), to pay for fees and expenses in connection with the Project and for initial working capital needs after completion of the Project. On August 14, 2012, the Borrower refinanced the Credit Facility, which had been fully drawn on, and the Partnership was repaid its entire commitment. As a result of the refinancing, the Partnership earned approximately $58,300 in call protection fees per the terms of the Credit Facility. The First Facility was scheduled to mature on December 17, 2014; the Second Facility was scheduled to mature on December 17, 2015. The Borrower paid various one-time fees and other loan costs upon the closing of the Credit Facility. The Partnership's General Partner received a mortgage placement fee of 1.5% of the Partnership's total commitment under the Credit Facility for its services in connection with the placement of the Credit Facility. NOTE 7. SUBSEQUENT EVENTS On August 8, 2013, the Partnership filed a definitive information statement with the SEC announcing a 1-for-100 -10- reverse split of the Partnership's outstanding Units (the "Reverse Split"). The Reverse Split was approved upon the written consent by two of the Partnership's limited partners who, together, own approximately 57% of the Partnership's Units. As a result of the Reverse Split, the Partnership's limited partners owning fractional shares following the Reverse Split will be cashed out of their ownership interest at a rate of $120.00 per pre-split Unit and, as a result, will no longer be limited partners of the Partnership. Subsequently, the number of limited partners of the Partnership will fall below 300, which will deem the Partnership eligible to terminate the registration of its Units under the Securities Exchange Act of 1934, as amended. On August 12, 2013, the Partnership mailed information packages setting forth the details of the Reverse Split to all of its limited partners. The Reverse Split will take effect approximately twenty days following the mailing of the information packages. The General Partner of the Partnership retained the services of a financial advisory firm, Houlihan Capital, LLC ("Houlihan"), to render an opinion as to the fairness from a financial point of view of the consideration to be paid to the existing affiliated and unaffiliated limited partners (including those limited partners who would be cashed out in conjunction with the Reverse Split and those who would remain limited partners after the effects of the Reverse Split). After the Reverse Split becomes effective, the General Partner intends to terminate the registration of the Partnership's Units with the SEC. As a result of the termination of the registration of its Units with the SEC, the Partnership will no longer file periodic reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed in this Form 10-Q contain certain forward-looking statements and involve risks and uncertainties. Biggest Little Investments, L.P. (the "Partnership") could be affected by declining economic conditions as a result of various factors that affect the real estate business including the financial condition of tenants, competition, the ability to lease vacant space within the Sierra Marketplace Shopping Center (the "Sierra Property") or renew existing leases, increased operating costs (including insurance costs), and the costs associated with, and results of, any Partnership plans to renovate and reposition the Sierra Property, as detailed in the filings with the Securities and Exchange Commission (the "SEC") made by the Partnership from time to time. The discussion of the Partnership's liquidity, capital resources and results of operations, including forward-looking statements pertaining to such matters, is based on management's current expectations and does not take into account the effects of any changes to the Partnership's operations resulting from risks and uncertainties. Accordingly, actual results could differ materially from those projected in the forward-looking statements. Maxum LLC is the Partnership's general partner (the "General Partner"). This item should be read in conjunction with the financial statements and other items contained elsewhere in the report. Recent Events On June 6, 2013, the Partnership filed a preliminary information statement with the SEC seeking to effect a reverse split of the Partnership's outstanding limited partnership units (the "Units") on the basis of one new Unit for each 100 issued and outstanding Units, such that limited partners owning fewer than 100 Units will have their Units cancelled and converted into the right to receive a cash consideration of $120.00 per pre-split Unit (the "Reverse Split"). The Reverse Split was approved by written consent in lieu of a meeting of limited partners by two limited partners holding 57.1% of the issued and outstanding Units. Following the effectiveness of the Reverse Split, the Partnership will terminate its reporting obligations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The purpose -11- of the Reverse Split is to reduce the number of record holders of the Partnership's Units in order for it to become a privately held entity, which will be owned primarily by its affiliates and will no longer be subject to the reporting requirements of the federal securities laws. On August 8, 2013, the SEC approved the Partnership's filings made with respect to the Reverse Split and the Partnership filed a definitive information statement with the SEC setting forth the details and rights of the limited partners of the Reverse Split. On August 12, 2013, the Partnership mailed information packages setting forth the details of the Reverse Split to all of its limited partners. The Reverse Split will take effect approximately twenty days following the mailing of the information packages. The General Partner retained the services of a financial advisory firm, Houlihan Capital, LLC ("Houlihan"), to render an opinion as to the fairness from a financial point of view of the consideration to be paid to the existing affiliated and unaffiliated limited partners (including those limited partners who would be cashed out in conjunction with the Reverse Split and those who would remain limited partners after the effects of the Reverse Split). After the Reverse Split becomes effective, the General Partner intends to terminate the registration of the Partnership's Units with the SEC. As a result of the termination of the registration of its Units with the SEC, the Partnership will no longer file periodic reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The definitive information statement on Schedule 14C and statement on Schedule 13E-3 filed on August 8, 2013 and August 9, 2013, respectively, are incorporated herein by reference. On May 28, 2013, the Partnership entered into a 20-year lease with a franchisee of Popeye's Louisiana Kitchen, a national fast food chain ("Popeye's"). The Partnership is contributing approximately $571,000 to the construction cost of a new building that will be occupied by Popeye's, plus approximately $100,000 for fees, utility improvements and grading. The Partnership will earn total rent of $585,200 during the first five years of the lease with adjustments based on the Consumer Price Index every five years. The tenant has two five-year options to extend the lease after the initial 20 years. On April 9, 2013, the Partnership issued a cash distribution of $1.70 per Unit on the outstanding Units of the Partnership to limited partners of record at the close of business on March 28, 2013. On August 31, 2009, the Partnership initiated an offer enabling the Partnership's limited partners to sell their Units back to the Partnership (the "Redemption Offer"). The Partnership may repurchase whole Units only, at a price reasonably determined by the General Partner based on market considerations. Units repurchased by the Partnership under the Redemption Offer will be canceled, and will have the status of authorized but unissued Units. The Partnership's obligation to repurchase any Units under the Redemption Offer is conditioned upon its having sufficient funds available to complete the repurchase. The Partnership will use any operating funds as the General Partner, in its sole discretion, may reserve for the purpose of funding the Redemption Offer. On August 24, 2012, the Redemption Offer was extended until August 31, 2013, subject to the right of the General Partner to suspend, terminate, modify or extend the term of the Redemption Offer in its sole discretion. On August 9, 2013, the Partnership terminated the Repurchase Program following the announcement of the Reverse Split. An aggregate of 12,704 Units were repurchased by the Partnership pursuant to the Redemption Offer at an approximate average price of $103.26 per Unit. Liquidity and Capital Resources The Partnership's level of liquidity based on cash and cash equivalents decreased by $2,038,975 to $8,030,150 during the six months ended June 30, 2013 as compared to December 31, 2012. The decrease was due primarily to cash used for the purchase of securities partially offset by cash received from the sale of securities. The Partnership also placed approximately $571,145 into an account that is restricted for the construction of the Popeye's building at -12- the Sierra Property. The Partnership also used cash to pay for a $1.70 per- Unit distribution, for operating activities and for the payment and prepayment of redemption of Units pursuant to the Redemption Offer. Cash and cash equivalents are invested in short-term instruments and are expected to be sufficient to pay administrative expenses during the term of the Partnership. Real Estate Market The Partnership's sole fixed asset as of June 30, 2013, was the Sierra Property, which currently has a vacancy rate of approximately 78% based on leasable square footage. The overall softness in the economy in the past few years has hurt the retail sector, thus making it difficult to locate new tenants for the Sierra Property. Also, in the past few years, the Sierra Property has lost all three of its original anchor tenants and has not been able to locate new anchor tenants with similar lease terms. One of the anchor tenant spaces was demolished for the purpose of creating in its place a new driveway (and traffic signal) directly between the Sierra Property and the hotel casino property next to the Sierra Property (the "Adjacent Property"), and the portion of the Sierra Property that was demolished has been leased to the owner of the Adjacent Property since September 30, 2004, enabling the Partnership to make up much of the lost rental revenue previously generated by the space. The other two anchor tenant spaces are vacant. The Partnership continues to market the Sierra Property to potential tenants. There can be no assurances that the Partnership's efforts to increase the Sierra Property's occupancy will be successful. Results of Operations COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2013 AND 2012. The Partnership earned a net loss of $107,135 for the three-month period ended June 30, 2013, versus net income of $81,179 for the same period in 2012. The decrease was mainly due increases in all expense categories that were partially offset by an increase in the realized gain from the sale of securities and a slight increase in revenues. The Partnership incurred a loss from operations of $302,324 during the three months ended June 30, 2013, as compared to a loss from operations of $50,415 during the comparable period in 2012. Revenues, not including interest income or gains from the sale of securities, increased by $9,531 to $224,632 for the quarter ended June 30, 2013 as compared to the same period in 2012. The increase in revenues is mainly due to slightly higher rental revenue from the Sierra Property during the 2013 second quarter as compared to the 2012 second quarter, as well as to higher other revenues. Costs and expenses increased to $526,956 for the three-month period ended June 30, 2013, as compared to $265,516 for the same period in the prior year's second quarter. Operating expenses increased by $37,575 mainly due to increases in commissions and payroll costs that were partially offset by decreases in taxes and insurance costs as well as overall lower costs to maintain the Sierra Property. General and administrative expenses increased by $86,855 primarily due to increases in legal and accounting fees in part as a result of the filings made with the SEC in connection with the Reverse Split, and other miscellaneous expenses. Management fees increased primarily as a result of the one-time development fee earned by the General Partner for its services in connection with the development of the Popeye's building. Depreciation expense increased by $6,479. The Partnership also incurred an unrealized gain of $218,192 from its holdings of various securities during the 2013 second quarter as compared to an unrealized loss of $308,444 during the 2012 second quarter. -13- COMPARISON OF OPERATING RESULTS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2012. The Partnership earned net income of $123,082 for the six-month period ended June 30, 2013, versus net income of $159,406 for the same period in 2012. The decrease was due mainly to increases in expenses and a slight decrease in revenues that were partially offset by an increase in a gain from the sale of securities during the first six months of 2013 as compared to the 2012 period. The Partnership incurred a loss from operations of $370,525 during the six months ended June 30, 2013, as compared to a loss from operations of $115,387 during the comparable period in 2012. Revenues, not including interest income, decreased by $8,674 to $423,794 for the period ended June 30, 2013, as compared to the same period in 2012. The decrease in revenues is mainly due to lower rental income from fewer tenants at the Sierra Property during the first six months of 2013 as compared to the same period in the prior year. Costs and expenses increased to $794,319 for the six-month period ended June 30, 2013, as compared to $547,855 for the same period in the prior year. Operating expenses increased by $31,516 mainly due to increases in payroll and commission costs that were partially offset by decreases in taxes and insurance costs. General and administrative expenses increased by $76,279 primarily as a result of higher legal and accounting fees in part as a result of the filings made with the SEC in connection with the Reverse Split, as well as other miscellaneous expenses. Management fees increased primarily as a result of a one-time development fee paid by the Partnership to the General Partner during the first six months of 2013 for its services in connection with securing the Popeye's lease and the development of assets related to the Popeye's lease. The Partnership's depreciation expense increased by $12,959 as a result of additional assets being put into use during the first six months of 2013. The Partnership also incurred an unrealized gain of $616,963 from its holdings of various securities during the first six months of 2013 as compared to an unrealized loss of $118,689 during the 2012 six-month period. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the Sierra Property to adequately maintain the physical assets and the other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term and long-term needs of the Partnership, except that the Partnership may need to obtain financing for any potential renovation and/or redevelopment. Critical Accounting Policies The Partnership's significant critical accounting policies include the evaluation of the fair value of real estate. The Partnership evaluates the need for an impairment loss on its real estate assets when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the asset's carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The evaluation of the fair value of real estate is an estimate that is susceptible to change and actual results could differ from those estimates. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and the other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term and long-term needs of the Partnership, except that the Partnership may need to obtain financing for any future renovation efforts or other capital projects. The Partnership did not incur any impairment charges during the six months ended June 30, 2013 or 2012. See "Notes to Financial Statements - Note 5. Real Estate." Investments are classified as trading or available-for-sale. Trading investments are recorded at fair value with unrealized gains and -14- losses reflected in the statements of operations. Available-for-sale investments' unrealized gains and losses are included as a component of accumulated other comprehensive income in the accompanying statements of operations and comprehensive income. Interest on investments is recognized as income when earned. Realized gains and losses on investments are included in the accompanying statements of operations and comprehensive income under the caption "gain on sale of securities." Long-term notes receivable bear interest and are due upon maturity. Interest income associated with these notes receivable is reflected in the accompanying statements of operations and comprehensive income under the caption "interest income." ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 4 - CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the Partnership in its periodic reports filed or submitted by the Partnership under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Partnership in its periodic reports that are filed under the Exchange Act is accumulated and communicated to the Partnership's management, including its principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on an evaluation under the supervision and with the participation of the Partnership's management, its principal executive and financial officer has concluded that the Partnership's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of June 30, 2013, to ensure that information required to be disclosed in reports that are filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Partnership's management, including its principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure. There were no changes in the Partnership's internal control over financial reporting during the quarter ended June 30, 2013, that materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS On August 31, 2009, the Partnership initiated the Redemption Offer enabling the Partnership's limited partners to sell their Units back to the Partnership. The Partnership may repurchase whole Units only, at a price reasonably determined by the General Partner based on market considerations. Units repurchased by the Partnership under the Redemption Offer will be canceled, and will have the status of authorized but unissued Units. The Partnership's obligation to repurchase any Units under the Redemption Offer is conditioned upon it having sufficient funds available to complete the repurchase. The Partnership will use any operating funds as the General -15- Partner, in its sole discretion, may reserve for the purpose of funding the Redemption Offer. On August 24, 2012, the Redemption Offer was extended until August 31, 2013, subject to the right of the General Partner to suspend, terminate, modify or extend the term of the Redemption Offer in its sole discretion. On June 6, 2013, the Redemption Offer was suspended pending the SEC's final response to the Partnership's initial filings with regards to the Reverse Split. As of June 6, 2013, an aggregate of 12,704 Units had been repurchased by the Partnership at an approximate average price of $103.26 per Unit. During the second quarter of 2013, the Partnership repurchased Units from some of its limited partners. All repurchased Units during this period were made pursuant to the Redemption Offer as follows:
Maximum Number of Units Total Number Average That May Yet Be Of Units Price Paid Purchased Under The Period Repurchased Per Unit Redemption Offer ----------- ------------ ----------- ------------------------ 4/1/13 to 4/30/13 223 $113.00 (1) 5/1/13 to 5/31/13 109 $113.00 (1) 6/1/13 to 6/30/13 - - (1) ------------ ----------- ------------------------ Total 332 $113.00 (1) ============ =========== ========================
(1) On August 9, 2013, the Redemption Offer was terminated following approval by the SEC of the Reverse Split. ITEM 5. OTHER INFORMATION On June 6, 2013, the Partnership filed a preliminary information statement with the SEC seeking to effect the Reverse Split of the Partnership's outstanding limited partnership Units on the basis of one new Unit for each 100 issued and outstanding Units. In connection with the Reverse Split, limited partners owning fewer than 100 Units will have their Units cancelled and converted into the right to receive a cash consideration of $120.00 per pre-split Unit (the "Reverse Split"). The Reverse Split was approved by written consent in lieu of a meeting of limited partners by two limited partners holding 57.1% of the issued and outstanding Units. Following the effectiveness of the Reverse Split, the Partnership will terminate its reporting obligations under the Exchange Act. The purpose of the Reverse Split is to reduce the number of record holders of the Partnership's Units in order for it to become a privately held entity, which will be owned primarily by its affiliates and will no longer be subject to the reporting requirements of the federal securities laws. On August 8, 2013, the SEC approved the Schedule 13e- 3 and preliminary information statement on Schedule 14C filed by the Partnership in connection with the Reverse Split and the Partnership filed a definitive information statement with the SEC setting forth the details and rights of the limited partners of the Reverse Split. On August 12, 2013, the Partnership mailed information packages setting forth the details of the Reverse Split to all of its limited partners. The Reverse Split will take effect approximately twenty days following the mailing of the information packages. The General Partner retained the services of Houlihan, a financial advisory firm, to render an opinion as to the fairness from a financial point -16- of view of the consideration to be paid to the Partnership's existing affiliated and unaffiliated limited partners (including those limited partners who would be cashed out in connection with the Reverse Split and those who would remain limited partners after the effects of the Reverse Split). After the Reverse Split becomes effective, the General Partner intends to terminate the registration of the Partnership's Units with the SEC. As a result of the termination of the registration of its Units with the SEC, the Partnership will no longer file periodic reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The definitive information statement on Schedule 14C and statement on Schedule 13E-3 filed on August 8, 2013 and August 9, 2013, respectively, are incorporated herein by reference. ITEM 6 - EXHIBITS Exhibits required by Item 601 of Regulation S-K are filed herewith and are listed in the attached exhibit index. -17- 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. BIGGEST LITTLE INVESTMENTS L.P. BY: MAXUM LLC Its General Partner BY: /S/ BEN FARAHI ------------------- Ben Farahi Manager DATE: 08/14/2013 -18- BIGGEST LITTLE INVESTMENTS, L.P. FORM 10-Q JUNE 30, 2013 Exhibit Index Exhibit Page No. ------- -------- 31.1 Certification pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. 20 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 21 -19- EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ben Farahi, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Biggest Little Investments L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and I have: a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed, under my supervision, to ensure that material information relating to the Registrant is made known to me, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting to the Registrant's auditors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. /s/ BEN FARAHI -------------- Ben Farahi Manager of the General Partner Date: 08/14/2013 -20- EXHIBIT 32.1 BIGGEST LITTLE INVESTMENTS, L.P. FORM 10-Q JUNE 30, 2013 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Biggest Little Investments L.P. (the "Partnership") on Form 10-Q for the fiscal quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. Date: August 14, 2013 /s/ BEN FARAHI -------------- Ben Farahi Manager of the General Partner -21-