Attached files
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 March 31, 2012
[ ] 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
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(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
MARCH 31, DECEMBER 31,
2012 2011
(UNAUDITED)
------------- ------------
ASSETS
Current Assets
Cash and cash equivalents................... $ 5,761,723 $ 5,646,046
Short-term investments - CDs................ 248,102 248,101
Trade and other receivables, net............ 33,542 20,367
Securities.................................. 2,520,394 2,029,754
Prepaid expense............................. 1,846 2,400
----------- -----------
Total Current Assets...................... 8,565,607 7,946,668
----------- -----------
Long-Term Assets
Notes receivable............................ 4,410,000 4,455,000
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Total Long-Term Assets.................... 4,410,000 4,455,000
----------- -----------
Property, plant and equipment, net........... 10,572,138 10,668,902
----------- -----------
Total assets............................. $23,547,745 $23,070,570
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable, prepaid rent, accrued
expenses and unclaimed property........ $ 125,926 $ 40,770
Tenant deposits.......................... 21,386 22,808
Demolition costs......................... 338,670 346,700
----------- -----------
Total liabilities........................... 485,982 410,278
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Commitments and Contingencies
Partners' Equity
Limited partners' equity (170,390 units
issued and outstanding at 3/31/12;
173,421 at 12/31/11)................... 22,438,788 22,702,467
Prepaid redemption....................... (10,220) (246,280)
Accumulated other comprehensive income
(loss)................................. 16,644 (410,490)
General partner's equity................. 616,551 614,595
----------- -----------
Total partners' equity...................... 23,061,763 22,660,292
----------- -----------
Total liabilities and partners' equity........ $23,547,745 $23,070,570
=========== ===========
The accompanying Notes are an integral part of these Financial Statements.
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BIGGEST LITTLE INVESTMENTS L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
2012 2011
------------ ------------
Revenues
Rental revenues.................................. $ 94,418 $ 119,231
Related party rental revenues.................... 110,323 101,428
Fee revenues..................................... - 15,000
Other revenues................................... 12,627 2,450
----------- -----------
Total revenues................................ 217,368 238,109
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Costs and Expenses
Operating expenses............................... 117,046 130,470
General and administrative....................... 51,928 52,572
Depreciation..................................... 96,764 96,764
Management fees.................................. 16,602 18,653
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Total costs and expenses...................... 282,340 298,459
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Loss from operations.......................... $ (64,972) $ (60,350)
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Other Income and Expenses
Interest income.................................. 127,228 63,671
Gain on sale of securities....................... 15,971 -
Interest expense................................. - (160)
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Total other income............................. 143,199 63,511
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Net income..................................... 78,227 3,161
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Other Comprehensive Income
Unrealized gain from securities.................. 16,644 23,839
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Comprehensive income........................... 94,871 27,000
=========== ===========
Net Income Attributable To:
Limited partners................................. $ 76,271 $ 3,082
General partner.................................. 1,956 79
----------- -----------
$ 78,227 $ 3,161
=========== ===========
Net income per unit of limited partnership
interest (170,390 and 173,421 weighted average
units outstanding for the three months ended
March 31, 2012 and March 31, 2011, respectively). $ 0.45 $ 0.02
=========== ===========
The accompanying Notes are an integral part of these Financial Statements.
-3-
BIGGEST LITTLE INVESTMENTS L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED
----------------------------
March 31, March 31,
2012 2011
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Cash flows from operating activities:
Net income.................................... $ 78,227 $ 3,161
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ............................... 96,764 96,764
Gain on sale of securities.................. (15,971) -
Changes in assets and liabilities:
Increase in receivables..................... (13,175) (4,032)
Decrease (increase) in prepaid expense...... 554 (59,470)
Increase (decrease) in accounts payable,
accrued expenses, and other liabilities.... 75,704 (2,290)
Increase in short-term investments - CD..... - (262)
------------- ------------
Net cash provided by operating activities.... 222,103 33,871
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Cash flows from investing activities:
Cash used for the purchase of securities...... (262,620) (1,024,862)
Cash received from the sale of securities..... 215,084 -
Cash received from Grand Falls note receivable 45,000 -
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Net cash used in investing activities...... (2,536) (1,024,862)
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Cash flows from financing activities:
Cash used for payment of redemption of
limited partnership units................... (93,670) (85,080)
Cash used for prepayment of redemption of
limited partnership units................... (10,220) (990)
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Net cash used in financing activities...... (103,890) (86,070)
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Net increase (decrease)in cash and cash
equivalents.................................. 115,677 (1,077,061)
Cash and cash equivalents, beginning of period.. 5,646,046 4,059,370
------------- ------------
Cash and cash equivalents, end of period........ $ 5,761,723 $ 2,982,309
============= ============
Non-Cash
Retired prepaid redemption................ $ 246,280 $ 45,260
Draw on credit facility................... $ - $ 3,000,000
Unrealized gain (loss) on securities...... $ 427,133 $ (778,906)
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, 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, 2011. 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, 2011, was derived from audited financial
statements at such date.
The results of operations for the three months ended March 31, 2012 and
2011 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 March 31, 2012, 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.
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
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
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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 March 31, 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. A majority of the Partnership's cash
and cash equivalents are held at one financial institution.
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.
Rental revenues from the Adjacent Property has been reclassified into
"Related Party Rental Revenues" for the period ended March 31, 2012, and the
2011 presentation has been modified to reflect such reclassification. This
reclassification had no effect on the Partnership's net income for the period
ended March 31, 2012 or for any other period.
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 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.
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:
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Level 1 Quoted prices (unadjusted) in active markets for identical assets
or liabilities;
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
March 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 weighted average
number of Units outstanding (170,390 for the three months ended March 31,
2012, and 173,421 for the three months ended March 31, 2011) during the period
then ended.
On December 30, 2011, the Partnership commenced an odd lot tender offer
(the "Offer") to purchase all of its outstanding Units held by limited
partners owning up to an aggregate of ten units at a price of $140 per Unit.
Units held in employee benefit plans were not eligible for the offer. The
Offer expired on February 9, 2012, and resulted in the tender by limited
partners, and purchase by the Partnership, of 256 Units. Units repurchased
pursuant to the Offer will be canceled and will have the status of authorized
but unissued Units.
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 22, 2011,
the Redemption Offer was extended until August 31, 2012, subject to the right
of the General Partner to suspend, terminate, modify or extend the term of the
Redemption Offer in its sole discretion. As of March 31, 2012, an aggregate of
10,384 Units had been repurchased by the Partnership at an approximate average
price of $102.81 per Unit pursuant to the Redemption Offer.
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.
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.
-7-
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 March 31, 2012:
Fair Value Measurement
---------------------------------
Level 1 Level 2 Level 3 Total
---------- --------- --------- ----------
Stock Securities $3,150,710 $ - $ - $3,150,710
Short option securities (630,316) - - (630,316)
Short-Term Investments - CDs 248,102 - - 248,102
Notes receivable 4,410,000 - - 4,410,000
---------- --------- --------- ----------
Total $7,178,496 $ - $ - $7,178,496
========== ========= ========= ==========
Valuation of Financial Instruments measured on a recurring basis by
hierarchy levels as of December 31, 2011:
Fair Value Measurement
---------------------------------
Level 1 Level 2 Level 3 Total
---------- --------- --------- ----------
Stock Securities $2,253,010 $ - $ - $2,253,010
Short option securities (223,256) - - (223,256)
Short-Term Investments - CDs 248,101 - - 248,101
Notes receivable 4,455,000 - - 4,455,000
---------- --------- --------- ----------
Total $6,732,855 $ - $ - $6,732,855
========== ========= ========= ==========
The Partnership recorded an unrealized gain of $427,133 for the three
months ended March 31, 2012, and recorded an unrealized gain of $23,839 for
the three months ended March 31, 2011. During the three months ended March 31,
2012, the Partnership sold securities resulting in a realized gain of $15,971
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.
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
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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 12.1% of Monarch's outstanding common stock as of March
31, 2012.
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 $16,602 and $18,653 for the three months ended March 31, 2012
and 2011, 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 $1,956 for the three months ended March 31, 2012 and
net income of $79 for the three months ended March 31, 2011.
Also pursuant to the Amended LP Agreement, the General Partner shall
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.
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NOTE 5. REAL ESTATE
The Partnership's real estate is summarized as follows:
March 31, 2012 December 31, 2011
------------------ -----------------
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
Buildings - suspense............ (738,611) (738,611)
------------------ -----------------
14,411,550 14,411,550
------------------ -----------------
Accumulated depreciation........ (4,035,071) (3,938,307)
Accumulated depreciation -
suspense...................... 195,659 195,659
------------------ -----------------
$ 10,572,138 $ 10,668,902
================== =================
On June 8, 2011, the Partnership reached final agreement (the
"Agreement") with and sold to the Regional Transportation Commission (the
"RTC") a portion of the Sierra Property for the purpose of widening a section
of Moana Lane, a main thoroughfare in Reno, Nevada on which the Sierra
Property is located. The widening will expand Moana Lane from four to six
lanes. Under the terms of the Agreement, the RTC paid the Partnership
$2,731,787 ($2,743,730 less $11,943 for legal and administrative expenses
incurred with the sale) for causing demolition of up to 15,800 square feet of
the Sierra Property's buildings, the RTC's acquisition of 25,306 square feet
of the Sierra Property's land and 10,026 square feet of utility easement. The
RTC paid the Partnership an additional $346,700 for relocation and demolition
costs related to the Sierra Property's buildings and improvements. As a result
of the Agreement, the Partnership allocated approximately $117,483 of the
RTC's payments to the Sierra Property's land book value and placed
approximately $542,952 ($738,611 less accumulated depreciation of $195,659)
into suspense for the portion of the Sierra Property's buildings that could be
demolished. The Partnership recorded a gain on asset condemnation of
$2,071,352.
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 being developed
in Grand Falls, Iowa (the "Borrower"). The Partnership's commitment to the
Credit Facility is $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.
The First Facility matures on December 17, 2014; the Second Facility
matures on December 17, 2015. Borrowings are secured by liens on all present
and future equity interests of the Borrower and guarantors, substantially all
of the real and personal property of the Borrower and guarantors and all
products, profits, rents and proceeds of the foregoing. The Credit Facility is
guaranteed by the Borrower's parent company and affiliates of the Borrower
have signed a completion guaranty on the Project.
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The Credit Facility contains covenants customary and typical for a
facility of this nature, including, but not limited to, covenants restricting
the use of proceeds, the Borrower's ability to merge, transfer ownership,
incur additional indebtedness, encumber assets and make certain investments.
The Credit Facility also contains covenants that allow the lead lender to
monitor construction of the Project, as well as covenants requiring that the
Borrower maintain certain minimum financial ratios. The Borrower was in
compliance with the Credit Facility's covenants as of March 31, 2012.
The available commitment under the revolving loan is subject to quarterly
reductions commencing on the earlier of either the second full quarter after
the completion of the Project or March 30, 2012. The Borrower may permanently
reduce the maximum commitment available and the revolving loan may be prepaid
without penalty at any time after December 10, 2012 (certain LIBOR breakage
costs and call protection fees are applicable prior to December 17, 2012).
The Borrower paid various one-time fees and other loan costs upon the
closing of the Credit Facility.
At the Borrower's option, the First Facility will bear interest based
either on a base rate (as defined in the Credit Facility agreement) plus an
interest rate margin of 6.00%, or on one, three or six-month LIBOR rate plus
an interest rate margin of 7.00% (in no event shall LIBOR be less than
2.00%). The First Facility bore a 1.50% upfront fee and a 2.00% annual non-
usage fee payable to the Partnership. The Second Facility bears interest at a
rate of 15.00%. Interest started accruing on December 17, 2010, and may not be
prepaid until the First Facility is paid off. Any pre-payment on the Second
Facility prior to December 10, 2013, is subject to call protection fees. The
Second Facility may only be drawn on after an initial $50 million in Borrower
equity is spent on the construction of the casino project. The First Facility
may only be drawn on after the Second Facility has been fully drawn on. As of
March 31, 2012, both the First Facility and the Second Facility had been fully
drawn and recorded as Notes Receivable. Prior to being drawn, the
Partnership's $3 million commitment was recorded as restricted cash.
All participants, including the Partnership, executed an intercreditor
agreement concerning the sharing of collateral contributions among the
participants.
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.
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 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").
-11-
This item should be read in conjunction with the financial statements and
other items contained elsewhere in the report.
Recent Events
On April 10, 2012, the Partnership issued a cash distribution of $2.00
per unit of limited partnership interest in the Partnership (the "Units") to
limited partners of record as of the close of business on March 29, 2012.
On December 30, 2011, the Partnership commenced an odd lot tender offer
(the "Offer") to purchase all of its outstanding Units held by limited
partners owning up to an aggregate of ten units at a price of $140 per Unit.
Units held in employee benefit plans were not eligible for the offer. The
Offer expired on February 9, 2012, and resulted in the tender by limited
partners, and purchase by the Partnership, of 256 Units. Units repurchased
pursuant to the Offer will be canceled and will have the status of authorized
but unissued Units.
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 22, 2011, the Redemption Offer was
extended until August 31, 2012, subject to the right of the General Partner to
suspend, terminate, modify or extend the term of the Redemption Offer in its
sole discretion. As of March 31, 2012, an aggregate of 10,384 Units had been
repurchased by the Partnership pursuant to the Redemption Offer.
Liquidity and Capital Resources
The Partnership's level of liquidity based on cash and cash equivalents
increased by $115,677 to $5,761,723 during the three months ended March 31,
2012 as compared to December 31, 2011. The increase was due primarily to cash
provided by operating activities that were partially offset by cash used for
the payment and prepayment for Units to limited partners pursuant to the
Repurchase Program and for the purchase of securities of publicly traded
companies. The Partnership is permitted to purchase such securities pursuant
to its Second Amended and Restated Agreement of Limited Partnership. 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.
None of the recently issued accounting standards had an effect on the
Partnership's financial statements.
Real Estate Market
The Partnership's sole fixed asset as of March 31, 2012, was the Sierra
Property, which currently has a vacancy rate of approximately 78% based on
leasable square footage. The ongoing softness in the overall economy 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 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,
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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 MARCH 31,
2012 AND 2011.
The Partnership earned net income of $78,227 for the three-month period
ended March 31, 2012, versus net income of $3,161 for the same period in 2011.
The increase was due mainly to interest income from the Credit Facility
(see Note 6. Notes Receivable) as well as its cash balances. This gain was
partially offset by an approximate $64,972 loss from operations. Revenues, not
including interest income, decreased by $20,741 to $217,368 for the quarter
ended March 31, 2012 as compared to the same period in 2011. The decrease in
revenues is due to lower rental income from fewer tenants and lower rents at
the Sierra Property during the first quarter of 2012 as compared to the same
period in the prior year, as well as fee revenues from the Partnership's
participation in the Credit Facility earned during the 2011 first quarter that
the Partnership did not earn during the 2012 first quarter.
Costs and expenses decreased to $282,340 for the three-month period ended
March 31, 2012, as compared to $298,459 for the same period in the prior year
mainly due to decreases in operating costs and management fees. Operating
expenses decreased by $13,424 mainly due to decreases in taxes and insurance
costs, as well as lower utility and maintenance costs to the Sierra Property.
Management fees decreased to $16,602 during the first quarter of 2012 compared
to $18,653 for the same period in 2011 primarily due to the decrease in rental
revenues. General and administrative expenses remained relatively unchanged,
as did the Partnership's depreciation expense. The Partnership also incurred
an unrealized gain of $16,644 from its holdings of various securities during
the 2012 first quarter as compared to an unrealized gain of $23,839 during the
2011 first quarter.
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 only significant critical accounting policy relates to
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
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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 three months ended March 31, 2012 or 2011. 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
losses reflected in the statements of operations. Available-for-sale
investments' unrealized gains and losses are included as a component of 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.
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 Securities Exchange Act of 1934, as amended (the
"Exchange Act") is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission'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 March 31, 2012, 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
Securities and Exchange Commission 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 March 31, 2012, that materially
affected, or are reasonably likely to materially affect, the Partnership's
internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS
Exhibits required by Item 601 of Regulation S-K are filed herewith and
are listed in the attached exhibit index.
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: 05/09/2012
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BIGGEST LITTLE INVESTMENTS, L.P.
FORM 10-Q MARCH 31, 2012
Exhibit Index
Exhibit Page No.
------- --------
31.1 Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002. 17
32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. 18
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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: 05/09/2012
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EXHIBIT 32.1
BIGGEST LITTLE INVESTMENTS L.P.
FORM 10-Q MARCH 31, 2012
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 March 31,
2012, 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: May 09, 2012
/s/ BEN FARAHI
--------------
Ben Farahi
Manager of the General Partner
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