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 July 31, 1998
- --- -------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------
Commission file number 033-80104
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GRANITE DEVELOPMENT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 34-1754061
- ----------------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1250 Terminal Tower 50 Public Square Cleveland, Ohio 44113
- ------------------------------------------------------ -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 216-621-6060
------------
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
--- ---
<PAGE>
GRANITE DEVELOPMENT PARTNERS, L.P.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
July 31, 1998 and January 31, 1998 3-4
Statements of Operations
Three Months and Six Months ended
July 31, 1998 and 1997 5
Statements of Changes in Partners' Deficit 6
Statements of Cash Flows - Six Months
Ended July 31, 1998 and 1997 7-8
Notes to the Financial Statements 9-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
- -------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
<CAPTION>
July 31, 1998 January 31, 1998
------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
LAND $ 2,673,841 $ 3,081,890
LAND IMPROVEMENTS 2,345,854 3,278,881
----------- -----------
5,019,695 6,360,771
RESTRICTED CASH EQUIVALENTS - 481,287
MORTGAGE NOTES RECEIVABLE 2,742,842 3,149,565
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 32,048,804 29,748,165
OTHER ASSETS
Mortgage procurement costs, net of accumulated
amortization of $2,132,601 at July 31, 1998
and $1,906,318 at January 31, 1998 148,001 374,284
Organization costs, net of accumulated amortization
of $751,933 at July 31, 1998 and $672,621 at
at January 31, 1998 - 79,312
Cash 659,303 224,158
Interest receivable 8,669,357 7,397,262
Other 25,500 80,500
Administrative fee receivable 150,000 120,000
----------- ------------
9,652,161 8,275,516
----------- ------------
$49,463,502 $ 48,015,304
=========== ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -------------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS - (continued)
<CAPTION>
July 31, 1998 January 31, 1998
------------- ----------------
(Unaudited)
<S> <C> <C>
LIABILITIES, PARTNERS' SPECIAL
UNITS & PARTNERS DEFICIT
- ------------------------------
SENIOR NOTES PAYABLE $36,000,000 $ 36,000,000
MORTGAGE NOTES PAYABLE 992,434 1,242,514
LOAN PAYABLE - AFFILIATE 2,645,951 -
OTHER LIABILITIES
Accounts payable 118,473 463,373
Accrued fees, partners 477,625 207,145
Accrued interest 1,051,016 975,845
Accrued real estate taxes 143,307 143,899
Deposits 1,655,919 1,933,477
Deferred income 6,806,888 5,877,653
----------- -------------
10,253,228 9,601,392
PARTNERS' EQUITY (DEFICIT)
Partners' special units 9,000,000 9,000,000
Partners' deficit (9,428,111) (7,828,602)
(428,111) 1,171,398
------------- ---------------
$49,463,502 $ 48,015,304
============= ===============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -------------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
---------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Sales of developed property $ 1,704,020 $ 830,000 $ 2,377,020 $ 1,621,497
Cost of sales (1,140,626) (510,365) (1,557,070) (1,034,263)
------------ ------------ ------------- -------------
563,394 319,635 819,950 587,234
Interest 165,739 250,273 254,784 482,146
Commission 87,587 30,135 129,352 54,277
Other 98,110 37,600 160,358 68,844
------------ ------------ ------------- -------------
914,830 637,643 1,364,444 1,192,501
------------ ------------ ------------- -------------
EXPENSES
Interest 1,034,656 1,032,349 2,083,120 2,042,181
Fees, partners 178,176 131,231 270,480 274,156
Real estate taxes 52,842 42,073 92,838 88,410
Operating and other 95,283 31,153 128,615 54,288
Amortization 151,813 178,840 305,595 358,616
------------ ------------ ------------- -------------
1,512,770 1,415,646 2,880,648 2,817,651
------------ ------------ ------------- -------------
(597,940) (778,003) (1,516,204) (1,625,150)
(Loss) income from joint ventures (24,878) 130,461 (83,305) 307,851
------------ ------------ ------------- -------------
NET LOSS $ (622,818) $ (647,542) $ (1,599,509) $ (1,317,299)
============ ============ ============= =============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -------------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<CAPTION>
Sunrise FC-Granite Limited
Land Co. Inc. Partners Total
---------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at January 31, 1995 $ (38,932) $ (9,178,564) $ - $ (9,217,496)
Net loss (1,585) (156,902) - (158,487)
---------- -------------- ------------ -------------
Balance at January 31, 1996 (40,517) (9,335,466) - (9,375,983)
Capital contribution-
exercise of warrants - - 3,999,960 3,999,960
Withdrawal of original
limited partner 40,517 (40,517) - -
Distribution of interest on
special units - (1,914,202) - (1,914,202)
Net income - 966,815 - 966,815
---------- -------------- ------------ -------------
Balance at January 31, 1997 - (10,323,370) 3,999,960 (6,323,410)
Distribution of interest on
special units - (1,147,980) - (1,147,980)
Net loss - (89,303) (267,909) (357,212)
---------- -------------- ------------ -------------
Balance at January 31, 1998 - (11,560,653) 3,732,051 (7,828,602)
Net loss for the six months
ended July 31, 1998
(unaudited) - (399,877) (1,199,632) (1,599,509)
---------- -------------- ------------ -------------
Balance at July 31, 1998
(unaudited) $ - $ (11,960,530) $ 2,532,419 $ (9,428,111)
========== ============== ============ =============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- ----------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
July 31,
-------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash Flow from Operating Activities:
Net loss $ (1,599,509) $ (1,317,299)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization 305,595 358,616
Loss (income)from joint ventures 83,305 (307,851)
Changes in operating assets and liabilities:
Decrease in land and land improvements 1,341,076 226,180
Decrease in restricted cash equivalents 481,287 2,458,427
Decrease in mortgage notes receivable 406,723 657,132
Increase in interest receivable (1,272,095) (1,194,259)
Decrease (increase) in other assets 55,000 (25,500)
Decrease in commission receivable - 17,392
Increase in administration fee receivable (30,000) (30,000)
(Decrease) increase in accounts payable (344,900) 64,223
Increase in accrued fees, partner 270,480 274,156
Increase in accrued interest 75,171 62,962
Decrease in accrued real estate taxes (592) (10,271)
Decrease in deposits (277,558) (1,170,055)
Increase in deferred income 929,235 898,375
----------- ------------
Net cash provided by operating activities 423,218 962,228
----------- ------------
Cash Flow from Investing Activities:
Distribution from affiliate - 642,600
Investments in and advances to affiliates (2,383,944) (1,429,720)
----------- ------------
Net cash used in investing activities (2,383,944) (787,120)
----------- ------------
Cash Flow from Financing Activities:
Proceeds from loan payable - Affiliate 2,645,951 -
Repayment of mortgage notes payable (250,080) (348,117)
Increase in mortgage procurement costs - (7,900)
----------- ------------
Net cash provided by (used in) financing activities 2,395,871 (356,017)
----------- ------------
Increase (decrease) in cash 435,145 (180,909)
Cash at beginning of the period 224,158 286,988
----------- ------------
Cash at end of the period $ 659,303 $ 106,079
=========== ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- ----------------------------------------
<TABLE>
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited) (continued)
<CAPTION>
Six Months Ended
Supplemental Disclosure of Cash Flow Information July 31,
-------------------------------
Cash paid during the period for: 1998 1997
----------- ------------
<S> <C> <C>
Interest $ 2,007,949 $ 1,979,219
Real estate taxes $ 93,430 $ 98,681
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE A - FINANCIAL STATEMENT DISCLOSURES
Certain information and footnote disclosures, which are normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Partnership's January 31, 1998 Annual Report on Form
10K.
The financial statements have been prepared on a basis consistent with
accounting principles applied in the prior periods and reflect all adjustments
which are, in the opinion of management, necessary for a fair representation of
the results of the operations for the periods presented. All adjustments for the
six months ended July 31, 1998 were of a normal recurring nature. Results of
operations for the six month period ended July 31, 1998 are not necessarily
indicative of results of operations which may be expected for the full year.
NOTE B - SENIOR NOTES PAYABLE
The Partnership has issued unsecured senior notes payable ("Senior Notes")
limited to the aggregate principal amount of $36,000,000. The Senior Notes bear
interest at a fixed annual rate of 10.83%, payable semi-annually, and include a
negative pledge covenant relating to the assets and operations of the
Partnership, allowing only a collateralized working capital line not to exceed
$5,000,000 and subordinated indebtedness of $5,000,000. Commencing May 15, 1995
and until such time as the principal of the Senior Notes and interest thereon is
repaid in full, 100% of the cash flow of the Partnership, as defined, shall be
applied to repay the Senior Notes. The Senior Notes will mature on November 15,
2003, but are subject to earlier redemption.
NOTE C - PARTNERS' SPECIAL UNITS
Until the senior notes are paid in full, $9,000,000 of the partners' special
units bear interest at 10.83% and will be paid pari-passu with interest on the
Senior Notes.
Interest earned on the partners' special units amounted to $490,057 for the six
months ended July 31, 1998 and has not been distributed. Interest earned on the
partners' special units shall be reflected as a distribution when paid. Total
interest earned and unpaid of $573,990 and $83,933 as of July 31, 1998 and
January 31, 1998, respectively, will be distributed pari-passu with the interest
on the Senior Notes when funds are available.
NOTE D - MORTGAGE NOTES PAYABLE
The Partnership enters into various mortgage notes payable to purchase certain
properties. Amounts outstanding under the terms of these agreements are
$992,434 at July 31, 1998 and $1,242,514 at January 31, 1998. The notes payable
are collateralized by mortgages on the properties. Principal and interest are
generally payable one year after the date of the notes payable.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE D - MORTGAGE NOTES PAYABLE (continued)
During the year ended January 31, 1998, the Partnership entered into a
construction loan agreement collateralized by a first mortgage lien in an amount
not to exceed $1,400,000. The principal amount outstanding bears interest at a
rate one-half of one percent (1/2%) in excess of the prime rate (8.5% at July
31, 1998) and matures on November 21, 2000. As of July 31, 1998, the outstanding
balance related to this loan was $726,659. The loan was established for the
funding of the Thornbury development.
During the year ended January 31, 1996, the Partnership entered into a
development loan agreement in an amount of $480,000. The principal amount
outstanding bears interest at a rate of 8% and matures on October 16, 1999. As
of July 31, 1998, the outstanding balance related to this loan was $240,000.
The loan was established for the funding of the Fairfax development.
During the year ended January 31, 1997, the Partnership entered into a
construction loan agreement collateralized by a promissory note in an amount not
to exceed $1,600,000. The note bears interest at the prime rate (8.5% at July
31, 1998) and matures on August 1, 1998. As of July 31, 1998, the outstanding
balance related to this loan was $25,775. The loan was established for the
funding of the Fairfax Meadows development. The Partnership is negotiating
with its current lender and expects to refinance or extend the maturity date of
the construction loan due August 1, 1998, on terms acceptable to the
Partnership. The Partnership will seek alternative sources of financing should
such negotiations with its current lenders prove to be unsuccessful.
NOTE E - TRANSACTIONS WITH AFFILIATES
The sole general partner is FC-Granite, Inc., an Ohio corporation
("FC-Granite"). FC-Granite is a wholly-owned subsidiary of Sunrise Land Company
("Sunrise"), the land division subsidiary of Forest City Enterprises, Inc.
FC-Granite and Sunrise are reimbursed for all direct costs of operations of the
Partnership's affairs and development activities.
FC-Granite is paid a monthly administrative fee as compensation for its services
in administering the business of the Partnership which is equal to one-sixth of
1% of the book value of the partnership properties, as defined. Total
administrative fees accrued for the six months ended July 31, 1998 and 1997,
were $100,251 and $121,291, respectively. Fees outstanding as of January 31,
1998, were $16,750. Total outstanding fees of $117,001 as of July 31, 1998, will
be paid when funds are available.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE E - TRANSACTIONS WITH AFFILIATES (continued)
Pursuant to a management agreement, Sunrise is paid a semi-annual development
fee equal to 4% of gross revenues as compensation for its services in managing
the development of the partnership properties. Total development fees accrued
for the six months ended July 31, 1998 and 1997 were $90,789 and $81,528,
respectively. Development fees as of January 31, 1998 and July 31, 1998 were
$101,544 and $192,333, respectively, and will be paid when funds are available.
In addition, accrued real estate commissions due to FC-Granite were $79,440 and
$71,337 for the six months ended July 31, 1998 and 1997, respectively.
Commissions outstanding as of January 31, 1998 and July 31, 1998 were $88,851
and $168,291, respectively, and will be paid when funds are available.
Pursuant to the Amended and Restated Silver Canyon Partnership Agreement, the
Partnership is to receive a monthly administrative fee in the amount of $5,000
per month. Fees earned during the six months ended July 31, 1998 and 1997, were
$30,000. Fees earned for the year ended January 31, 1998, were $120,000. Total
fees due the Partnership as of July 31, 1998 are $150,000.
In addition, the Partnership is to receive a commission equal to 1.67% of gross
sales as compensation for its services in conducting marketing and sales duties
and authorization of sales contracts. The Partnership earned $129,352 and
$54,277 during the six months ended July 31, 1998 and 1997, respectively.
During the six months ended July 31, 1998, Sunrise loaned the Partnership
$2,645,951 to fund additional development expenditures at the Silver Canyon
project. Funds advanced bear interest at 10% and will be paid back when excess
funds are available.
Included in restricted cash equivalents and deposits at January 31, 1998 is
$481,287 which represents sales proceeds invested on behalf of Eaton Estate
Partnership in short-term commercial paper. The funds, together with interest
earned, will be returned to the Eaton Estate Partnership as funding of
development expenditures is needed.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE F - INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
The Partnership has a 33 1/3% interest in Silver Canyon Partnership and a 30%
interest in Eaton Estate Partnership. The Partnership's investments in Silver
Canyon Partnership at July 31, 1998 and January 31, 1998, were $3,895,533 and
$4,003,748, respectively, and in Eaton Estate Partnership at July 31, 1998 and
January 31, 1998, were $2,571,507 and $2,546,597, respectively.
The Partnership has advanced $25,779,323 at July 31, 1998 and $23,395,379
at January 31, 1998 to the partnerships. Pursuant to the Amended and Restated
Partnership Agreement for Silver Canyon Partnership, funds advanced to Silver
Canyon Partnership as of January 31, 1996 bear interest at ten percent (10%) and
funds advanced subsequent to January 31, 1996 bear interest at the rate of prime
plus 1 3/4% (8.5% at July 31, 1998). Funds advanced to Eaton Estate Partnership
bear interest at prime plus three percent (3%). Total interest earned on the
advances amounted to $1,221,546 and $1,072,516 for the six months ended July 31,
1998 and 1997, respectively. Interest income is deferred by the Partnership
until the interest capitalized on the joint ventures is recognized as cost of
sales by the joint ventures. Interest recognized as income for the six month
period ended July 31, 1998 and 1997, was $163,461 and $136,571, respectively.
The Silver Canyon Partnership loan from Residential Funding Corp. (GMAC Loan)
had a due date of June 7, 1998. The loan was extended to September 15, 1998. The
outstanding balance due as of July 31, 1998 was $8,833,683. We are currently
considering whether we will finance future Seven Hills development internally or
with external funding, and are negotiating the terms for external financing with
several lenders.
For the six months ended July 31, 1998, the Silver Canyon Partnership generated
net loss of $166,484. Of this amount, $108,215 has been recorded by the
Partnership under the equity method. For the six months ended July 31, 1998, the
Eaton Estate Partnership generated a net income of $83,033. Of this amount,
$24,910 has been recorded by the Partnership under the equity method.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE G - JOINT VENTURE STATEMENT OF OPERATIONS
<TABLE>
Shown below is the statement of operations for the Silver Canyon Partnership:
<CAPTION>
Six Months Ended
July 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Operating income $1,410,055 $1,108,778
EXPENSES
Fees, partners 60,000 60,000
Commissions 1,055,007 243,758
Legal and professional 273,250 12,327
Travel and entertainment 20,988 35,717
Operating and other 91,931 273,182
Depreciation and amortization 75,363 102,995
----------- -----------
Subtotal 1,576,539 727,979
----------- -----------
NET INCOME (LOSS) $(166,484) $380,799
=========== ===========
</TABLE>
NOTE H - LITIGATION
The Partnership is involved in two separate instances of litigation related to
its operations. The Partnership believes it has meritorious defenses to the
claims of both instances of litigation, and intends to defend against them both
vigorously. The Partnership and several affiliates are defendants in a
proceeding arising out of the October 1996 sale of the 194th Street property
located in Miami Beach, Florida. The plaintiff is a third-party broker seeking a
commission on the premise that the plaintiff initiated contact between the
ultimate buyer and the Partnership. In the opinion of management and legal
counsel the maximum damages based on the litigation proceedings is approximately
$400,000. However, the Partnership and other defendants deny that any commission
has been earned by the Plaintiff and legal counsel on the Partnership is seeking
a summary judgment seeking dismissal of the case.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
- -----------------------------------------
GRANITE DEVELOPMENT PARTNERS, L.P.
(A Delaware Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
NOTE H - LITIGATION (continued)
The Partnership owns a 33 1/3% interest in the Silver Canyon Partnership
("Silver Canyon"). Silver Canyon is developing the Seven Hills project, located
in Henderson, Nevada, in conjunction with a golf course. In August 1997, a
class-action lawsuit was filed by the current homeowners in Seven Hills against
Silver Canyon, the golf course developers and other entities. In addition, a
separate lawsuit was filed by some of the production homebuilding companies at
Seven Hills, against some of the same parties. Both suits seek a commitment for
public play on the golf course, as well as damages. Silver Canyon and the
Partnership are responding to both suits, and are attempting to reach an
appropriate resolution with all parties involved. Sales efforts are continuing
at the Seven Hills development, and because these events are recent, it is not
yet possible to determine the extent of any impact on the Partnership's or
Silver Canyon's financial performance. The Partnership and Silver Canyon believe
they have meritorious defenses to these claims and intend to defend against them
vigorously. Parties to the lawsuits are currently engaged in discovery
proceedings.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
The following discussion and analysis of Granite Development Partners, L.P.
should be read in conjunction with the audited financial statements as of
January 31, 1998 contained in the Annual Report on Form 10-K.
Results of Operations
The Partnership recorded sales of $2,377,020 for the six month period ended
July 31, 1998 versus $1,621,497 for the six month period ended July 31, 1997.
The Partnership sold nineteen lots located in The Ledges subdivision in
Twinsburg, Ohio for a total of $1,078,020 and six lots in the River Oaks
subdivision in Kirtland Hills, Ohio for a total of $720,000. The Eaton Estate
Partnership, a joint venture of the Partnership accounted for under the equity
method, reported no sales for the six months ended July 31, 1998 and $795,000
for the six month period ended July 31, 1997. The Silver Canyon Partnership
reported sales of $8,888,852 for the six months ended July 31, 1998 versus
$3,250,445 for the six months ended July 31, 1997. The increase in sales
corresponds with the significant development increases over the last two years.
As of July 31, 1998, the following significant sales were under contract: 117
lots of the Eaton Estate development in Sagamore Hills, Ohio for $6,089,500; 68
sublots of The Ledges subdivision located in Twinsburg, Ohio for $3,958,816; and
270 lots and 77 acres of the Silver Canyon development in Henderson, Nevada for
$23,172,483. None of the contracts are guaranteed to close.
Interest income totaled $254,784 for the six months ended July 31, 1998
versus $482,146 for the six months ended July 31, 1997. Interest income is
comprised of interest earned on notes receivable from the sales of developed
property, from funds advanced to the joint ventures and from the investment of
proceeds from sales in short-term commercial paper. Interest income earned on
funds advanced to the Silver Canyon Partnership is being deferred. The decrease
in interest income is mainly due to a lower average mortgage note receivable
balance.
For the six months ended July 31, 1998 and 1997, the Partnership reported net
losses of $1,599,509 and $1,317,299, respectively. The increase in net loss is
primarily the result of a net loss in income from joint ventures of $83,305 for
the six month period ended July 31, 1998 versus a net income of $307,851 for
the six month period ended July 31, 1997. This was partially offset by an
increase in net sales of $819,950 for the six month period ended July 31, 1998
versus net sales of $587,234 for the six month period ended July 31, 1997.
<PAGE>
Financial Condition and Liquidity
Net cash provided by operating activities was $423,218 for the six months
ended July 31, 1998 versus $962,228 for the six months ended July 31, 1997. The
decrease in net cash provided by operating activities is primarily the result of
a decrease in restricted cash equivalents of $480,399 for the six months ended
July 31, 1998 versus a decrease in restricted cash equivalents of $2,458,427 for
the six months ended July 31, 1997. The restricted cash, which is reserved for
development purposes, was used to fund development expenses of the Partnership
and the joint ventures. This was partially offset by the decrease in land and
land improvements of $1,341,076 for the six months ended July 31, 1998 versus a
decrease of $226,180 for the six months ended July 31, 1997.
Net cash used in investing activities was $2,383,944 and $787,120 for the six
months ended July 31, 1998 and 1997, respectively. The increase in funds
advanced to the Silver Canyon Partnership is due to a shortfall of cash
available from sales proceeds from the joint venture. While a substantial amount
of the funds necessary to pay improvements for the Silver Canyon Partnership is
obtained through financing from the underground improvement loan with General
Motors Acceptance Corporation - Residential Funding Corporation (GMAC), any
shortfall of funds necessary to pay improvements is partially funded by the
Partnership.
Net cash provided by financing activities was $2,395,871 for the six month
period ended July 31, 1998 versus net cash used of $356,017 for the six month
period ended July 31, 1997. The net cash provided during the six month period
ended July 31, 1998 was primarily the result of funds advanced from Sunrise Land
Company to the Partnership to fund additional advances to Silver Canyon
Partnership. The net cash used during the six month period ended July 31, 1997,
was the result of principal payments on mortgage notes payable for a total of
$348,117. The Partnership had adequate funds available to make the semi-annual
payment of interest on the Senior Notes on May 15, 1998.
The Partnership is involved in two separate instances of litigation
related to its operations. The Partnership believes it has meritorious defenses
to the claims of both instances of litigation, and intends to defend against
them both vigorously. The Partnership and several affiliates are defendants in a
proceeding arising out of the October 1996 sale of the 194th Street property
located in Miami Beach, Florida. The plaintiff is a third-party broker seeking a
commission on the premise that the plaintiff initiated contact between the
ultimate buyer and the Partnership. In the opinion of management and legal
counsel the maximum damages based on the litigation proceedings is approximately
$400,000. However, the Partnership and other defendants deny that any commission
has been earned by the Plaintiff and legal counsel on the Partnership is seeking
a summary judgment seeking dismissal of the case.
<PAGE>
The Partnership owns a 33 1/3% interest in the Silver Canyon Partnership
("Silver Canyon"). Silver Canyon is developing the Seven Hills project, located
in Henderson, Nevada, in conjunction with a golf course. In August 1997, a
class-action lawsuit was filed by the current homeowners in Seven Hills against
Silver Canyon, the golf course developers and other entities. In addition, a
separate lawsuit was filed by some of the production homebuilding companies at
Seven Hills, against some of the same parties. Both suits seek a commitment for
public play on the golf course, as well as damages. Silver Canyon and the
Partnership are responding to both suits, and are attempting to reach an
appropriate resolution with all parties involved. Sales efforts are continuing
at the Seven Hills development, and because these events are recent, it is not
yet possible to determine the extent of any impact on the Partnership's or
Silver Canyon's financial performance. The Partnership and Silver Canyon believe
they have meritorious defenses to these claims and intend to defend against them
vigorously. Parties to the lawsuits are currently engaged in discovery
proceedings.
Year 2000
The Partnership has undertaken a program to prepare the financial and
operating computer systems and ancillary embedded applications for the year
2000. All necessary modifications are expected to occur in a timely manner at a
cost which is not expected to be material to the Partnership's operating
results.
During 1997, the Partnership completed the final phases of the replacement
of older mainframe systems. All major systems were replaced with newly purchased
year 2000 compliant software or software with definitive plans for upgrades to
year 2000 code.
The Partnership's plan concentrates on testing the compliant systems and
identifying other systems, such as embedded or operational systems, that are not
part of the new software. The specific steps of the plan include:
* Capturing and inventory of all systems including:
* The new Year 2000 compliant software.
* Computer related hardware and peripherals.
* Internal systems that may have been developed utilizing the
compliant code.
* Embedded or operational systems including our telephone, heating
and air conditioning systems, fire alarm systems, security systems,
and elevator systems.
* Obtaining compliance letters from all vendors in the inventory.
* Testing systems for compliance;
* Upgrading or replacing software and operational or embedded systems as
needed;
* Contacting our major business partners (suppliers, contractors,
utilities, financial institutions, etc.) to insure that they have an
active Year 2000 compliance program.
The Partnership has completed a software inventory and obtained compliance
letters from most vendors and considers its software assessment complete. The
Partnership is completing the inventory of embedded systems and is contacting
business partners to determine their year 2000 readiness. This phase of the
assessment will be complete by the third quarter 1998.
The testing phase is planned to be completed by the fourth quarter 1998 and
the Partnership recently acquired software which will test internally-developed
systems for Year 2000 compliance.
<PAGE>
Information Relating to Forward-Looking Statements
This Quarterly Report, together with other statements and information
publicly disseminated by the Partnership, contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
reflect management's current views with respect to financial results related to
future events and are based on assumptions and expectations which may not be
realized and are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial or otherwise, may
differ from the results discussed in the forward-looking statements. Risks and
other factors that might cause differences, some of which could be material,
include, but are not limited to, the effect of economic and market conditions on
a nation-wide basis as well as regionally in areas where the Partnership has a
geographic concentration of land; failure to consummate financing arrangements;
development risks, including lack of satisfactory financing, construction and
cost overruns; the level and volatility of interest rates; the rate of revenue
increases versus expenses increases; as well as other risks listed from time to
time in the Partnership's reports filed with the Securities and Exchange
Commission. The Partnership has no obligation to revise or update any
forward-looking statements as a result of future events or new information.
Readers are cautioned not to place undue reliance on such forward-looking
statements.
PART II. OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings
The Partnership is involved in two separate instances of litigation related
to its operations. The disclosure required by this item is incorporated by
reference to Note H of the July 31, 1998 unaudited financial statements and
management's discussion and analysis of financial condition which appears in
Part I of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - none
(b) No reports on Form 8-K have been filed by the Registrant during the
quarter ended July 31, 1998.
<PAGE>
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.
Granite Development Partners, L.P.
------------------------------------
(Registrant)
DATE: 9/14/98 /s/ Robert F. Monchein
--------------- ------------------------------------
Robert F. Monchein
President
FC-Granite, Inc., the general partner
of Granite Development Partners, L.P.
DATE: 9/14/98 /s/ Mark A. Ternes
--------------- ------------------------------------
Mark A. Ternes
Controller
FC-Granite, Inc., the general partner
of Granite Development Partners, L.P.
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