ITEM 1. BUSINESS
General
Biggest Little Investments, L.P. (the "Partnership"), formerly Resources Accrued Mortgage Investors 2, L.P., Resources Accrued Mortgage Investors L.P. Series 87 and Resources Accrued Mortgage Investors L.P. Series 88, was organized as a Delaware limited partnership on August 14, 1986. Until January 1, 2002, the general partners of the Partnership were RAM Funding, Inc. ("RAM Funding") and Presidio AGP Corp. ("Presidio AGP"). Effective January 1, 2002, the managing general partner interest and the associate general partner interest were acquired by Maxum LLC, a Nevada limited liability company (the "General Partner"). See "Change in Control" below. On October 8, 2003, the Partnership received consents from the holders of a majority of its outstanding units of limited partnership interest ("Units") to adopt the Partnership's Second Amended and Restated Agreement of Limited Partnership (the "Amended LP Agreement"). Pursuant to the Amended LP Agreement, the Partnership was renamed "Biggest Little Investments, L.P." In addition, the Amended LP Agreement provides the Partnership with the ability to leverage its property in an effort to increase the value of the Partnership, to purchase additional real estate for investment and/or development and to make or acquire additional mortgage loans or short-term loans, as well as to reinvest operating income and proceeds from the sale or refinancing of its properties or the disposition of its mortgage loans. Finally, the Amended LP Agreement permits the Partnership to repurchase Units from the limited partners. On June 12, 2009, the Amended LP Agreement was amended to permit the Partnership to invest in any personal property or other non-real estate assets and to invest in joint ventures, partnerships, firms, corporations or other entities where the Partnership would not have a controlling interest in such entities.
Change in Control
As of January 1, 2002, the General Partner acquired both the managing general partner interest and the associate general partner interest in the Partnership from RAM Funding and Presidio AGP, respectively, pursuant to the General and Limited Partner Interest Assignment Agreement (the "Assignment
Agreement"), dated as of October 10, 2001, between the General Partner, Western Real Estate Investments, LLC, an affiliate of the General Partner ("Western"), RAM Funding and Presidio AGP as well as Presidio Capital Investment Company LLC, Presidio Partnership II Corp. and Bighorn Associates LLC, each of which is affiliated with RAM Funding and Presidio AGP Corp. and was a limited partner of the Partnership prior to January 1, 2002 (the "Former LPs"). Also pursuant to the Assignment Agreement, as of January 1, 2002, Western purchased all of the Units owned by the Former LPs.
As a result of the transactions described above, the General Partner owns 100% of the general partner interests in the Partnership. In addition, as of January 1, 2002, the General Partner was appointed as the managing agent at the Sierra Property (as hereinafter defined), replacing an affiliate of RAM Funding, Presidio AGP and the Former LPs.
Effective October 1, 2008, Western was dissolved and, as a result of the dissolution, Western?s remaining Units were equally distributed to its three members based on each member?s one-third ownership of Western. Thus, Western no longer beneficially owns any of the outstanding Units.
On June 12, 2009, the Amended LP Agreement was amended (the ?Second Amendment?) by consent of Messrs. Ben and Bahram Farahi, who hold a majority of the Partnership?s outstanding Units. Ben Farahi is the manager of the General Partner, and Bahram Farahi is Ben Farahi's brother. The Second Amendment permits the Partnership to invest in any personal property or other non-real estate assets and to invest in joint ventures, partnerships, firms, corporations or other entities where the Partnership would not have a controlling interest in such entities. Prior to the Second Amendment, the Amended LP Agreement limited the Partnership to investments in mortgage notes or real estate assets and to investing in entities only where it would acquire a controlling interest in such entities.
The Second Amendment also extended the term of the Partnership to December 31, 2030. Prior to the Second Amendment, the term of the Partnership was scheduled to expire on December 31, 2016.
The principal executive offices of the Partnership are located at 3702 S. Virginia Street, Unit G2, Reno, Nevada 89502, and the Partnership's telephone number is (775) 825-3355.
Management / Employees
The Partnership has four employees; three of them work full time, one works part time. The business of the Partnership is managed by the General Partner and its affiliates and agents.
Investments of the Partnership
The Partnership had an investment in a mortgage loan (the "Sierra Loan") issued in 1989 in the amount of $6,500,000 to a public limited partnership. On March 3, 2003, the Partnership acquired the deed to the property securing the Sierra Loan, a shopping center commonly known as the Sierra Marketplace located in Reno, Nevada (the "Sierra Property"), in lieu of foreclosing on the Sierra Loan. The Sierra Property consists of approximately 210,000 square feet of net rentable area and occupies 18.44 acres, consisting primarily of two main buildings with spaces for two anchor tenants, with surface parking for approximately 1,000 automobiles. See "Item 2.
ITEM 2. PROPERTY
The Partnership's sole property is the Sierra Property, located at South Virginia Street and East Moana Lane, one of the busiest intersections in Reno, Nevada. The Partnership owns the Sierra Property in fee simple and the Sierra Property is not subject to any mortgages, liens or other encumbrances. The General Partner believes that the Sierra Property is adequately covered by insurance.
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 project was completed in November 2012 and Moana Lane was expanded 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. In September 2012, the Partnership began rebuilding the facade of the Sierra Property?s building that was impacted by the Widening Project. The rebuilding project was completed during the fourth quarter of 2012, and the Partnership funded the cost of the rebuilding project with the compensation it had received from the RTC. Following the completion of the rebuilding project, the Partnership removed the $542,952 from suspense and recognized a gain on condemnation in 2012 for this amount. See ?Notes to Financial Statements ? NOTE 5. REAL ESTATE.?
Tenants of the Sierra Property
The Sierra Property is in need of several new tenants, including anchor tenants. Over the past few years, the Sierra Property has lost all of its original anchor tenants and due, in part, to extensive competition for tenants, has not been able to sign new anchor tenants to similar lease terms.
Renovation
In 2004, the Partnership began renovation efforts in an attempt to maximize the financial viability of the Sierra Property by demolishing and rebuilding part 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 adjacent to the Sierra Property (the ?Adjacent Property?). The driveway was constructed and put into use on September 30, 2004, and is being shared by, and provides a connection between, the Sierra Property and the Adjacent Property. In January 2004, the Adjacent Property entered into a lease with the Partnership for a 37,368 square foot section of the Sierra Property (including the new driveway). The Adjacent Property has a minimum lease term of 15 years at a current monthly rent of approximately $28,400, subject to increase every 60 months based on the Consumer Price Index. 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. The space being leased by the Adjacent Property provides pedestrian and vehicle access to the Adjacent Property, and the Adjacent Property has use of a portion of the parking spaces at the Sierra Property.
As of March 6, 2013, approximately 18.1% of the Sierra Property's rentable square footage was occupied. The average effective monthly rent is $0.73 per occupied square foot. This does not include the driveway leased to the Adjacent Property.
Lease Expirations
The following table details the number of tenants, as of March 6, 2013, whose leases will expire over the next ten years and related information:
*This includes the driveway lease to the Adjacent Property.
In addition, there are seven spaces totaling approximately 20,400 square feet and representing approximately $11,900 in monthly rent that are currently being leased on a month-to-month basis.
In addition to its driveway lease, the Adjacent Property is leasing approximately 6,900 square feet of storage space at the Sierra Property on a month-to-month basis and pays rent of approximately $3,450 per month for such storage space.
Depreciation
Set forth below is a table showing the carrying value (in thousands), accumulated depreciation (in thousands) and federal tax basis (in thousands) of the Sierra Property as of December 31, 2012:
Carrying Accumulated Federal Tax Value Depreciation Rate Method Basis ----------- ------------ -------- ------------- ----------- $ 15,150 $4,325 5-30 yrs Straight Line $ 10,407
Realty Taxes
The realty tax rate for the Sierra Property for July 1, 2012, through June 30, 2013, is approximately 3.6600% of assessed value and the real estate taxes to be paid are $151,165.
Investment Policies of the Partnership
It is the Partnership's policy to acquire assets both for possible capital gain and for income. There are no limitations on the percentage of the Partnership's assets which may be invested in any one investment.
Investments in Real Estate or Interests in Real Estate
The Partnership may invest in properties including commercial or multi- family, real, personal or mixed, choses in action, or any interest therein, including any non-income producing properties, throughout the United States. The Partnership may finance its purchase of real estate, including from affiliates, provided that the maximum amount of permanent indebtedness secured by the Partnership's fixed assets may not exceed, with respect to any such fixed asset, 80% of the appraised value of that asset. The Partnership may lease, own, mortgage, encumber, improve or cause to be improved, use, lend, operate, service, maintain, develop, convey and otherwise dispose of and sell, handle, subdivide, plat, trade and deal in any property it acquires.
Investments in Real Estate Mortgages
The Partnership may invest in, hold, sell, dispose of and otherwise act with respect to first and junior mortgage loans on fee or leasehold interests in real property or other beneficial interests essentially equivalent to a mortgage on real property, as well as loans secured by interests in partnerships, real estate investment trusts, joint ventures or other entities. The Partnership may not, however, invest in or make mortgage loans on any one property if the aggregate amount of all mortgage loans outstanding on the property including the principal amount of the Partnership's mortgage loan, would exceed an amount equal to 80% of the appraised value of the property at the time the loan is made unless substantial justification exists because of the presence of other underwriting criteria, subject to certain exceptions.
Other Investments
Per the Second Amendment, the Partnership may purchase, exchange, acquire, lease, own, encumber, use, lend, borrow, operate, service, maintain, develop, convey and otherwise dispose of and sell, handle, trade, deal in and invest in any personal property or other non-real estate assets (whether tangible or intangible), choses in action or any interest therein, including, without limitation, (i) participations in loans and other financial accommodations, whether secured by real estate, other assets or unsecured and (ii) joint ventures, partnerships, firms, corporations or entities, whether
public, governmental or private, and whether the Partnership would have a controlling interest therein or not.
	See ?Item 8. Financial Statements ? Note 4. Conflicts of Interest and Transactions with Related Parties? for a description of the compensation, fees, profits and other benefits payable to the General Partner and its affiliates with respect to the Partnership?s real estate related business activities.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT?S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There is no established public trading market for the Units of the Partnership. There were no Units sold by the Partnership during fiscal years 2011 or 2012.
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 16, 2010, the Redemption Offer was extended until August 31, 2011. On August 22, 2011, the Redemption Offer was extended a second time until August 31, 2012, and, 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. As of March 6, 2013, an aggregate of 12,246 Units have been repurchased by the Partnership at an approximate average price of $102.89 per Unit pursuant to the Redemption Offer.
During the fourth quarter of 2012, 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:
(1) The Partnership will continue to repurchase Units pursuant to the Redemption Offer as liquidity allows and to the extent that the Partnership?s number of limited partners does not fall below 500.
As of March 6, 2013, there were approximately 691 holders of Units owning an aggregate of 168,435 Units (including Units held by affiliates of the General Partner).
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This item should be read in conjunction with the financial statements and other items contained elsewhere in this Annual Report on Form 10-K.
Recent Events
In September 2012, the Partnership began rebuilding the facade of the Sierra Property?s building that was impacted by the Widening Project. The rebuilding project was completed during the fourth quarter of 2012, and the Partnership funded the cost of the rebuilding project with the compensation it had received from the Regional Transportation Commission (see ?Notes to Financial Statements ? NOTE 5. REAL ESTATE?).
On August 14, 2012, a $75 million credit facility to a new casino in Grand Falls, Iowa that the Partnership had participated in with a group led by a major bank was refinanced and, as a result, the Partnership was repaid its entire outstanding 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 Partnership?s commitment had previously been recorded as a note receivable (see ?Notes To Financial Statements ? NOTE 6. NOTES RECEIVABLE?).
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 16, 2010, the Redemption Offer was extended until August 31, 2011. On August 22, 2011, the Redemption Offer was extended a second time until August 31, 2012, and, 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. As of March 6, 2013, an aggregate of 12,246 Units have been repurchased by the Partnership at an approximate average price of $102.89 per Unit pursuant to the Redemption Offer.
Real Estate Market
The Partnership's sole fixed asset as of December 31, 2012, was the Sierra Property, which currently has a vacancy rate of approximately 82% based on leasable square footage. There is substantial retail space competition in the Reno area, especially in close vicinity to the Sierra Property. In addition, the ongoing softness in the overall economy has hurt the retail sector, thus adding to the difficulty in locating new tenants for the Sierra Property. Also, in the past few years, the Sierra Property has lost all of its original anchor tenants and has not been able to locate new anchor tenants with similar lease terms; two of the spaces are currently vacant. The third anchor tenant space 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, enabling the Partnership to make up much of the lost rental revenue previously generated by the space.
There can be no assurances that the Partnership's efforts to increase the Sierra Property's occupancy will be successful.
Liquidity and Capital Resources
The Partnership's level of liquidity based on cash and cash equivalents increased by $4,423,079 to $10,069,125 during the year ended December 31, 2012, as compared to December 31, 2011. The increase was due primarily to the return of $4,455,000 from the refinancing of a credit facility to a casino project in Iowa that the Partnership had participated in and had previously recorded as a note receivable. The Partnership also had approximately $299,863 in cash provided by operating activities during the year ended December 31, 2102, as well as a net cash inflow of approximately $307,169 from the purchase and sale of various securities. These receipts were offset by cash used for a $2.00-per-Unit distribution in April 2012, and for the payment and prepayment for Units to limited partners 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. See "Item 8. Financial Statements - Note 2."
Results of Operations
Comparison of operating results for the year ended December 31, 2012, as compared to December 31, 2011.
Net income decreased by $945,588 to $1,293,888 for the year ended December 31, 2012 as compared to $2,239,476 in the previous year. Revenues decreased by $20,688 to $988,359 during 2012 as compared to the same period in 2011. The decrease in revenues was due to a slight decrease in rental income as a result of lower rents at the Sierra Property during 2012 compared to 2011, as well as a decrease in other revenues. Fee revenues increased in 2012 as compared to 2011 primarily due to call protection fees earned by the Partnership from the early repayment of the Grand Falls credit Facility.
Costs and expenses decreased to $1,146,784 in 2012 as compared to $1,245,172 in 2011 due to decreases in operating, general and administrative and management fee expenses. Operating costs decreased by $48,772, primarily due to decreases in property taxes and insurance costs, as well as to reductions in commissions and bad debt expense. These decreases were partially offset by increases in costs to maintain the Sierra Property. General and administrative expense decreased in 2012 by $4,875 primarily as a result of decreases in printing and mailing costs and payroll expenses. These decreases were partially offset by increases in professional services fees. Management fee expense decreased by $44,741 due to lower interest income in 2012 as compared to 2011, as well as a $67,500 mortgage placement fee to the General Partner in 2011 for its services in connection with the Credit Facility which the Partnership did not pay in 2012. These decreases were partially offset by a $25,691 fee that the Partnership paid to the General Partner for its services managing the Partnership?s securities investments. Depreciation expense remained unchanged.
The Partnership recorded a realized gain of $587,145 from the sale of various securities during 2012 as compared to a gain $813 in 2011, and a gain of $542,952 in connection with compensation it received from the RTC for the Widening Project, as compared to a gain of $2,071,352 in 2011 (SEE ?NOTE 6. REAL ESTATE?). In addition, the Partnership had an unrealized gain of $712,204 from its holdings of various securities during 2012. During 2011, the Partnership had an unrealized loss of $505,235 from its securities holdings.
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 2012.
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 (loss) 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.?
See ?Recently Issued Accounting Standards? in ?Item 8. Financial Statements - Note 2? for a description of recent accounting standards and their effects on the Partnership?s financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
To the Partners of Biggest Little Investments, L.P.
We have audited the accompanying balance sheets of Biggest Little Investments, L.P. (the ?Company?) as of December 31, 2012 and 2011 and the related statements of operations and comprehensive income, partner?s equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Biggest Little Investments, L.P. as of December 31, 2012 and 2011, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas March 26, 2013
BIGGEST LITTLE INVESTMENTS L.P. BALANCE SHEETS
The accompanying Notes to Financial Statements are an integral part of these statements.
BIGGEST LITTLE INVESTMENTS L.P. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
The accompanying Notes to Financial Statements are an integral part of these statements.
BIGGEST LITTLE INVESTMENTS L.P. STATEMENT OF PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 2012 AND 2011
The accompanying Notes to Financial Statements are an integral part of these statements.
BIGGEST LITTLE INVESTMENTS L.P. STATEMENTS OF CASH FLOWS
The accompanying Notes to Financial Statements are an integral part of these statements.
BIGGEST LITTLE INVESTMENTS L.P. NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND PLAN OF OPERATION
Biggest Little Investments, L.P. (the "Partnership"), formerly Resources Accrued Mortgage Investors 2, L.P., Resources Accrued Mortgage Investors L.P. Series 87 and Resources Accrued Mortgage Investors L.P. Series 88, a Delaware limited partnership, was formed in August 1986 under the Delaware Revised Uniform Limited Partnership Act for the purpose of investing primarily in senior and junior accrued interest mortgage loans on properties owned or acquired principally by publicly or privately syndicated limited partnerships sponsored by affiliates of Integrated Resources, Inc. ("Integrated"). During 1994, Integrated's indirect ownership of the managing general partner was purchased by Presidio Capital Corp. ("Presidio"). Through December 31, 2001, the managing general partner of the Partnership was RAM Funding, Inc. and the associate general partner was Presidio AGP Corp., which are wholly-owned subsidiaries of Presidio. Effective January 1, 2002, pursuant to the General and Limited Partner Interest Assignment Agreement (the "Assignment Agreement"), the managing general partner and associate general partner interests in the Partnership were acquired by Maxum LLC ("Maxum" or the "General Partner").
In accordance with the Partnership's Agreement of Limited Partnership (the "Partnership Agreement"), net income and loss, adjusted cash from operations and disposition proceeds are allocated 97.5% to the limited partners and 2.5% to the general partner.
On October 8, 2003, the Partnership received consents from the holders of a majority of its outstanding units of limited partnership interest ("Units") to adopt the Partnership's Second Amended and Restated Agreement of Limited Partnership (the "Amended LP Agreement"). Pursuant to the Amended LP Agreement, the Partnership was renamed "Biggest Little Investments, L.P." In addition, the Amended LP Agreement provides the Partnership with the ability to leverage its property in an effort to increase the value of the Partnership, to purchase additional real estate for investment and/or development and to make or acquire additional mortgage loans or short-term loans, as well as to reinvest operating income and proceeds from the sale or refinancing of its properties or the disposition of its mortgage loans. The Amended LP Agreement also permits the Partnership to repurchase Units from the limited partners. On June 12, 2009, the Amended LP Agreement was amended to permit the Partnership to invest in any personal property or other non-real estate assets and to invest in joint ventures, partnerships, firms, corporations or other entities where the Partnership would not have a controlling interest in such entities.
The Partnership had an investment in a mortgage loan (the ?Sierra Loan?) issued in 1989 in the amount of $6,500,000 to a public limited partnership. In March 2003, the Partnership acquired the deed to the property securing the Sierra Loan, a shopping center commonly known as the Sierra Marketplace located in Reno, Nevada (the ?Sierra Property?), in lieu of foreclosing on the Sierra Loan. The Sierra Property consists of approximately 210,000 square feet of net rentable area and occupies 18.44 acres, consisting primarily of two main buildings with spaces for two anchor tenants, with surface parking for approximately 1,000 automobiles. The Sierra Property is approximately 82% vacant.
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 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 December 31, 2012, the Partnership?s only operating asset was the Sierra Property and the Partnership determined that none of its long-lived assets were impaired at 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 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 December 31, 2012, the Partnership did not have a 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 on December 31, 2012 or December 31, 2011.
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 year. 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 (loss) 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.? As of 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; 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 December 31, 2012. See Note 3.
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 Units at December 31, 2012, and 173,421 Units at December 31, 2011) during the year.
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 16, 2010, the Redemption Offer was extended until August 31, 2011. On August 22, 2011, the Redemption offer was extended a second time until August 31, 2012, and, 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. As of December 31, 2012, an aggregate of 12,183 Units had been repurchased by the Partnership at an approximate average price of $102.88 per Unit pursuant to the Redemption Offer.
Income Taxes
No provisions have been made for federal, state and local 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.
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.
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.
Recently Issued Accounting Standards
In October 2012, the Financial Accounting Standards Board (?FASB?) issued Accounting Standards Update (?ASU?) 2012-04, ?Technical Corrections and Improvements? in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, ?Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)? in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, ?Intangibles ? Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment? in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles ? Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity?s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
In December 2011, FASB issued Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities? to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such; we do not
expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.
In September 2011, the FASB issued ASU No. 2011-08, ?Intangibles ? Goodwill and Other? (ASU 2011-08). ASU 2011-08 allows a qualitative assessment of whether it is more likely than not that a reporting unit?s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the two-step impairment test would be performed. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted. This update is expected to change the process the Company uses to test goodwill for impairment, but is not expected to have a material impact on its consolidated financial statements.
In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011- 04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This update clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This update is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for the Company is January 1, 2012. The Company does not expect that adopting this update will have a material impact on its consolidated financial statements.
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. The following table summarizes the Partnership?s securities holdings as of December 31, 2012:
Fair Value Measurement --------------------------------- Level 1 Level 2 Level 3 Total ---------- --------- --------- ---------- Available for Sale Securities $3,021,934 $ - $ - $3,021,934 Short-term investment ? CD 249,970 - - 249,970 ---------- --------- --------- ---------- Total $3,271,904 $ - $ - $3,271,904 ========== ========= ========= ==========
The following table summarizes the Partnership?s securities holdings as of December 31, 2011:
Fair Value Measurement --------------------------------- Level 1 Level 2 Level 3 Total ---------- --------- --------- ---------- Available for Sale Securities $2,029,754 $ - $ - $2,029,754 Short-term investment ? CD 248,101 - - 248,101 Note receivable 4,455,000 - - 4,455,000 ---------- --------- --------- ---------- Total $6,732,855 $ - $ - $6,732,855 ========== ========= ========= ==========
NOTE 4. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
In 2012, the Partnership began paying the General Partner for its services in connection with managing the Partnership?s investments in securities. The fee for these services is equal to one percent of the average quarterly asset balance of the Partnership?s securities portfolio. For 2012, this fee totaled $25,961.
In September 2012, the Partnership began rebuilding the facade of the Sierra Property?s building that was impacted by the Widening Project. During 2012, the Partnership paid approximately $273,182 to Pelican, LLC, an affiliate of the General Partner, for rebuilding the facade. The rebuilding project was completed during the fourth quarter of 2012, and the Partnership funded the cost of the rebuilding project with the compensation it had received from the Regional Transportation Commission (see ?Notes to Financial Statements ? NOTE 5. REAL ESTATE?).
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 by demolishing and rebuilding part 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 adjacent to the Sierra Property (the ?Adjacent Property?). The driveway was constructed and put into use on September 30, 2004, and is being shared by, and provides a connection between, the Sierra Property and the Adjacent Property. In January 2004, the Adjacent Property entered into a lease with the Partnership for a 37,368 square foot section of the Sierra Property (including the new driveway). The Adjacent Property has a minimum lease term of 15 years at a current monthly rent of approximately $28,400, subject to increase every 60 months based on the Consumer Price Index. 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. The space being leased by the Adjacent Property provides pedestrian and vehicle access to the Adjacent Property, and the Adjacent Property has use of a portion of the parking spaces at the Sierra Property.
In addition to the driveway lease, the Adjacent Property is leasing approximately 6,900 square feet of storage space at the Sierra Property on a month-to-month basis and is paying approximately $3,450 per month in rent for such space.
Ben Farahi, the Manager and sole member 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., the owner of the Adjacent Property, and still owned approximately 12.0% of Monarch?s outstanding common stock as of December 31, 2012.
The Partnership received approximately $523,474 and $515,662 in rental revenue and common area charges from the Adjacent Property during 2012 and 2011, respectively, for the driveway and the leased spaces.
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 $87,921 and $132,662 for the years ended December 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 included in the 2012 amount is one percent of the average quarterly asset balance of the Partnership?s securities portfolio, which the Partnership began paying the General Partner for services in connection with managing the Partnership?s investments in securities.
Also, pursuant to 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, for the year ended December 31, 2012, the General Partner was allocated income of $32,347.
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 services rendered. The General Partner did not earn any mortgage placement fees in 2012 or in 2011.
NOTE 5. REAL ESTATE
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 project was completed in November 2012 and Moana Lane was expanded 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. In September 2012, the Partnership began rebuilding the facade of the Sierra Property?s building that was impacted by the Widening Project. The rebuilding project was completed during the fourth quarter of 2012, and the Partnership funded the cost of the rebuilding project with the compensation it had received from the RTC. Following the completion of the rebuilding project, the Partnership removed the $542,952 from suspense and recognized a gain on condemnation in 2012 for this amount.
The Partnership's real estate is summarized as follows:
December 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) ----------------- ----------------- 15,150,161 14,411,550 ----------------- ----------------- Accumulated depreciation........ (4,325,363) (3,938,307) Accumulated depreciation ? suspense...................... - 195,659 ----------------- ----------------- $ 10,824,798 $ 10,668,902 ================= =================
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 earned approximately $305,735 in interest income in 2012 and approximately $381,954 in 2011 from the Credit Facility. As of December, 31, 2011, the Partnership had approximately $7,363 in interest receivable from 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 in 2010 for its services in connection with the placement of the Credit Facility.
NOTE 7. MINIMUM FUTURE RENTAL REVENUES
The Partnership leases office and retail space to various tenants under a variety of terms, including escalation provisions, renewal options and obligations of the tenants to reimburse operating expenses.
The aggregate future minimum fixed lease payments receivable under noncancellable leases at December 31, 2012, are as follows:
2013 .......... $ 560,936 2014 .......... 516,839 2015 .......... 494,178 2016 .......... 401,012 2017 .......... 368,503 Thereafter .... 596,308 ----------- $ 2,937,776 ===========
NOTE 8. RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL STATEMENTS TO TAX BASIS
A reconciliation of net income per financial statements to the tax basis of accounting is as follows:
The differences between the Partnership's net assets per financial statements and tax basis of accounting are as follows:
NOTE 9. LITIGATION
None.
NOTE 10. SUBSEQUENT EVENTS
None.
NOTE 11. MARKETABLE SECURITIES.
The following tables show the Partnership?s available-for-sale securities? fair value, gross unrealized gains and losses, gross realized gains and losses by significant investment category recorded as short-term marketable securities as of December 31, 2012 and December 31, 2011:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. 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 our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on an evaluation under the supervision and with the participation of our management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of December 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 our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Partnership. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control? Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2012.
Additionally, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Partnership?s internal control over financial reporting that occurred during the fourth quarter of 2012, nor were there any significant deficiencies or material weaknesses in our internal controls.
This annual report does not contain an attestation report of the Partnership?s registered public accounting firm regarding internal control over financial reporting. Management?s report was not subject to attestation by the Partnership?s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management?s report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
The Partnership has no officers or directors. The General Partner, Maxum LLC, a Nevada limited liability company, manages and controls substantially all of Partnership's affairs and has general responsibility and ultimate authority in all matters affecting its business. Ben Farahi has been the sole manager of the General Partner since its formation in 2001 and, as such, exercises the powers associated with the board of directors and executive officers of a corporation.
Mr. Farahi, age 60, was, until May 26, 2006, Co-Chairman of the Board, Chief Financial Officer, Secretary, and Treasurer of Monarch Casino & Resort, Inc. which, through its wholly-owned subsidiary Golden Road Motor Inn, Inc., a Nevada company, owns and operates the tropically themed Atlantis Casino Resort in Reno, Nevada. Since September 1, 1978, Mr. Farahi has been a partner in Farahi Investment Company, which is involved in real estate investment and development. He was also a director of the Bank of North Las Vegas from 2006 until January 2011. Mr. Farahi is also the Manager of the General Partner. Mr. Farahi holds a mechanical engineering degree from the University of California at Berkeley and a MBA degree in accounting from the California State University, Hayward.
Although the Partnership does not have a board of directors or, accordingly, an audit committee, Mr. Farahi, as the managing member of the General Partner, qualifies as a "financial expert" as defined in Securities and Exchange Commission Regulation S-K.
We have adopted a corporate code of ethics that applies to our principal executive and financial officer and any principal accounting officer or controller, or persons performing similar functions. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of the code of ethics is attached as exhibit 14, to this Form 10-K. The Partnership will also provide to any person, without charge and upon request, a copy of the code of ethics. Any such request must be made in writing to the Company at, 3702 S. Virginia Street, Unit G2, Reno, NV 89502.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Under 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 and disposition proceeds. For the fiscal year ended December 31, 2012, the General Partner was allocated income of $32,347 from the Partnership. See "Item 13. Certain Relationships and Related Transactions, and Director Independence" for information regarding amounts paid to affiliates of the General Partner by the Partnership for services provided by them in fiscal year 2012. The General Partner is the manager of the Sierra Property and received $87,921 in 2012 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 included in the 2012 management fee is one percent of the average quarterly asset balance of the Partnership?s securities portfolio which the Partnership began paying the General Partner in 2012 for its services in managing the Partnership?s securities investments. The General Partner may also receive mortgage placement fees but did not earn any such mortgage placement fees in 2012.
The Partnership does not have a compensation committee. Compensation is determined by the General Partner.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(a) Security Ownership of Certain Beneficial Owners.
Except as set forth below, no person or group is known by the Partnership to be the beneficial owner of more than 5% of the outstanding Units at March 6, 2013:
(1) Mr. Ben Farahi's principal business address is 3702 S. Virginia St., Unit G2, Reno, Nevada 89502. (2) Mr. John Farahi's principal business address is 3800 S. Virginia St., Reno, Nevada 89502. (3) Mr. Bob Farahi?s principal business address is 3702 S. Virginia St., Unit G2, Reno, Nevada 89502.
(b) Security Ownership of Management.
At March 6, 2013, neither the General Partner nor its members, manager or affiliates owned any Units except as indicated in (a) above.
(c) Changes in Control.
There exists no arrangement known to the Partnership the operation of which may at a subsequent date result in a change in control of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
See ?Item 8. Financial Statements ? Note 4. Conflicts of Interest and Transactions with Related Parties.?
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The General Partner has appointed M&K CPAs, PLLC (?M&K?) as independent auditors to audit the consolidated financial statements of the Partnership for 2012 and 2013.
Audit Fees. The Partnership has agreed to pay M&K $25,000 for professional services rendered for the audit of the Partnership?s annual financial statements, review of quarterly filings, or services that are normally provided by the accountant in connection with statutory and regulatory filings and engagements for the fiscal year ended December 31, 2012 and 2011. The Partnership paid M&K $25,000 for the audits of the Partnership?s annual financial statements for the fiscal years ended December 31, 2012 and 2011.
Audit-Related Fees. The Partnership paid M&K $0 during the years ended December 31, 2012 and 2011 for assurance and related services that are reasonably related to the performance of the audit or review of the Partnership?s financial statements.
Tax Fees. The Partnership has agreed to pay M&K tax compliance, advice and planning services fees of approximately $4,000 for the year ended December 31, 2012.
Other Fees. The Partnership did not pay any other fees to M&K for the year ended December 31, 2012 or 2011.
The General Partner pre-approves the engagement of the Partnership?s accountant for all audit and non-audit services.
No more than 50% of the hours expended by M&K to audit the Partnership?s financial statements for 2012 were attributed to work performed by persons other than M&K?s full-time, permanent employees.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
Included in Part II of this report:
a) Report of Independent Public Accounting Firm.
b) Balance Sheets as of December 31, 2012 and 2011.
c) Statements of Operations and Comprehensive Income for the years ended December 31, 2012 and 2011.
d) Statements of Partners? Equity for the years ended December 31, 2012 and 2011.
e) Statements of Cash Flows for the years ended December 31, 2012 and 2011.
f) Notes to Financial Statements.
Exhibits
The Exhibits listed on the accompanying Exhibit Index are filed as part of this Annual Report on Form 10-K and incorporated in this Annual Report as set forth in said Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 General Partner
By: /s/ Ben Farahi Date -------------- Ben Farahi, Manager March 26, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Ben Farahi Manager of March 26, 2013 -------------- the General Partner Ben Farahi
EXHIBIT INDEX
Exhibit 14
BIGGEST LITTLE INVESTMENTS L.P. CODE OF ETHICS
1. STATEMENT OF POLICY
These policies will serve as guidelines in helping you to conduct the Company's business in accordance with our values. Compliance requires meeting the spirit, as well as the literal meaning, of the law and the policies. It is expected that you will use common sense, good judgment, high ethical standards and integrity in all your business dealings.
If you encounter a situation you are not able to resolve by reference to these policies, ask for help. Contact Karl Brokmann, Investor Relations Manager, who has been appointed as our Compliance Officer and identified as responsible for overseeing compliance with these policies.
Violations of the law or the Company's policies will subject employees to disciplinary action, up to and including termination of employment. In addition, individuals involved may subject themselves and the Company to severe penalties including fines and possible imprisonment. Compliance with the law and high ethical standards in the conduct of Company business should be a top priority for each employee, officer and manager.
2. IMPLEMENTATION AND ENFORCEMENT.
Employees are expected to be familiar with these policies as they apply to their duties. They should consult with their supervisors if they need assistance in understanding or interpreting these policies. Each employee is required to follow these policies and to comply with their terms. A refusal by any employee to agree to be bound by these policies shall be grounds for discipline up to and including dismissal.
Any employee who, in good faith, has reason to believe a Company operation or activity is in violation of the law or of these policies must call the matter to the attention of Karl Brokmann. All reports will be reviewed and investigated as necessary under the circumstances, and the reporting employee should provide sufficient information to enable a complete investigation to be undertaken.
Any employee who makes an allegation in good faith reasonably believing that a person has violated these policies or the law, will be protected against retaliation.
3. INSIDER TRADING, SECURITIES COMPLIANCE AND PUBLIC STATEMENTS.
Securities laws prohibit anyone who is in possession of material, non- public information ("Insider Information") about a company from purchasing or selling stock of that company, or communicating the information to others. Information is considered "material" if a reasonable investor would consider it to be important in making a decision to buy or sell that stock. Some examples include financial results and projections, new products, acquisitions, investments, major new contracts or alliances prior to the time that they are publicly announced. Employees who become aware of such Inside Information about the Company must refrain from trading in the shares of the Company until the Inside Information is publicly announced.
Employees must also refrain from disclosing that information to persons who do not have a need to know, whether they are inside the Company or outside, such as spouses, relatives or friends.
The Company makes regular formal disclosures of its financial performance and results of operations to the investment community. Other than those public statements, which go through official Company channels, employees are prohibited from communicating outside the Company about the Company's business, financial performance or future prospects. Such communications include questions from securities analysts, reporters or other news media, but also include seemingly innocent discussions with family, friends, neighbors or acquaintances.
4. FINANCIAL REPORTING.
The Company is required to maintain a variety of records for purposes of reporting to the government. The Company requires all employees to maintain full compliance with applicable laws and regulations requiring that its books of account and records be accurately maintained.
5. HUMAN RESOURCES.
The Company is committed to providing a work environment that is free from unlawful harassment and discrimination, and respects the dignity of its employees. The Company has policies covering various aspects of its relationship with its employees, as well as employees' relationships with each other. For more detailed information, you should consult Karl Brokmann. Each employee is expected to be familiar with these policies and to abide by them.
6. ENVIRONMENTAL, HEALTH AND SAFETY.
The Company is committed to protecting the health and safety of our employees, as well as the environment in general. The Company expects employees to obey all laws and regulations designed to protect the environment, and the health and safety of our employees, and to obtain and fully observe all permits necessary to do business.
7. CONFLICTS OF INTEREST.
Each employee is expected to avoid any activity, investment or association that interferes with the independent exercise of his or her judgment in the Company's best interests ("Conflicts of Interest"). Conflicts of Interest can arise in many situations. They occur most often in cases where the employee or the employee's family obtains some personal benefit at the expense of the Company's best interests.
No employee, or any member of employee's immediate family, shall accept money, gifts of other than nominal value, unusual entertainment, loans, or any other preferential treatment from any business partner or potential business partner of the Company where any obligation may be incurred or implied on the giver or the receiver or where the intent is to prejudice the recipient in favor of the provider. Likewise, no employee shall give money, gifts of other than nominal value, unusual entertainment or preferential treatment to any business partner or potential business partner of the Company, or any employee or family members thereof, where any obligation might be incurred or implied, or where the intent is to prejudice the recipient in favor of the Company. No such persons shall solicit or accept kickbacks, whether in the form of money, goods, services or otherwise, as a means of influencing or rewarding any decision or action taken by a business partner, government employee or other person whose position may affect the Company's business.
No employee shall use Company property, services, equipment or business for personal gain or benefit.
Employees may not: (1) act on behalf of, or own a substantial interest in, any company or firm that does business, or competes, with the Company; (2) conduct business on behalf of the Company with any company or firm in which the employee or a family member has a substantial interest or affiliation. Exceptions require advance written approval.
Employees should not create the appearance that they are personally benefitting in any outside endeavor as a result of their employment by the Company, or that the Company is benefitting by reason of their outside interests. Any employee who is not sure whether a proposed action would present a conflict of interest or appear unethical should consult with Karl Brokmann.
8. GOVERNMENT RELATIONS.
The Company is prohibited by law from making any contributions or expenditures in connection with any U.S. national election. This includes
virtually any activity that furnishes something of value to an election campaign for a federal office. Use of the Company's name in supporting any political position or ballot measure, or in seeking the assistance of any elected representative, requires the specific approval of the General Partner of the Company. Political contributions or expenditures are not to be made out of Company funds in any foreign country, even if permitted by local law, without the consent of the Company's General Partner.
U.S. law also prohibits giving, offering, or promising anything of value to any public official in the U.S. or any foreign country to influence any official act, or to cause an official to commit or omit any act in violation of his or her lawful duty. Company employees are expected to comply with these laws.
EXHIBIT 31
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ben Farahi, certify that:
1. I have reviewed this Annual Report on Form 10-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a ? 15(f) and 15d ? 15(f) 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 fourth 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: 3/26/13
Exhibit 32
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Biggest Little Investments, L.P. (the "Partnership"), on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities 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, as amended; 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: March 26, 2013 /s/ Ben Farahi -------------- Ben Farahi, Manager of the General Partner