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GRANITE DEVELOPMENT PARTNERS LP
10-Q, 2000-11-14
LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES)

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Balance Sheets
		Statements of Operations
		Statement Of Changes In Partners’ Deficit
		Statements of Cash Flows
		Notes To The Financial Statements
		Management’s Discussion And Analysis Of Financial Condition
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
Exhibit 27

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SECURITIES AND EXCHANGE COMMISSION

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 September 30, 2000

Commission file number 033-80104

GRANITE DEVELOPMENT PARTNERS, L.P.

Delaware		34-1754061
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
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.  

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GRANITE DEVELOPMENT PARTNERS, L.P.

TABLE OF CONTENTS

				PAGE
PART I		FINANCIAL INFORMATION
Item  1.		Financial Statements
		Balance Sheets — September 30, 2000 (Unaudited) and December 31, 1999		3-4
		Statements of Operations (Unaudited) -Three months and nine months ended September 30, 2000 and 1999		5
		Statement of Changes in Partners’ Deficit (Unaudited)		6
		Statements of Cash Flows (Unaudited) — Nine months ended September 30, 2000 and 1999		7-8
		Notes to the Financial Statements (Unaudited)		9-15
Item  2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16-20
PART II		OTHER INFORMATION
Item  1.		Legal Proceedings		20
Item  6.		Exhibits and Reports on Form 8-K		20
Signatures

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PART I- ITEM 1. FINANCIAL INFORMATION

GRANITE DEVELOPMENT PARTNERS, L.P.

				September 30,				December 31,
				2000				1999
				(Unaudited)
ASSETS
LAND				$	1,000,929			$	1,138,136
LAND IMPROVEMENTS					2,899,792				1,256,810
					3,900,721				2,394,946
MORTGAGE NOTES RECEIVABLE					331,190				967,770
INVESTMENTS IN AND ADVANCES
	TO JOINT VENTURES				14,108,341				21,983,937
OTHER ASSETS
		Mortgage procurement costs			34,725				—
		Cash			3,010,306				3,219,145
		Interest receivable			78,207				97,139
		Other			—				26,204
					3,123,238				3,342,488
				$	21,463,490			$	28,689,141

      See notes to financial statements.

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PART I- ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

				September 30, 2000				December 31, 1999
				(Unaudited)
LIABILITIES AND PARTNERS’ DEFICIT
SENIOR NOTES PAYABLE				$	36,000,000			$	36,000,000
MORTGAGE NOTES PAYABLE					1,163,189				528,961
LOANS PAYABLE
	Sunrise Land Company				949,400				3,549,400
	Eaton Estate Partnership				3,514,286				3,514,286
					4,463,686				7,063,686
OTHER LIABILITIES
		Accounts payable			103,407				319,282
		Accrued interest			1,964,640				1,152,423
		Accrued real estate taxes			40,921				64,319
		Deposits			81,172				4,000
					2,190,140				1,540,024
PARTNERS’ DEFICIT
		Partners’ special units			9,000,000				9,000,000
		Partners’ deficit			(31,353,525	)			(25,443,530	)
					(22,353,525	)			(16,443,530	)
				$	21,463,490			$	28,689,141

      See notes to financial statements.

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PART I- ITEM 1 FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

			Three Months Ended								Nine Months Ended
			September 30,								September 30,
			2000				1999				2000				1999
REVENUES
	Sales of developed property		$	1,674,300			$	2,759,680			$	1,846,300			$	3,613,680
	Cost of sales			(1,186,539	)			(2,081,010	)			(1,279,307	)			(2,731,942	)
				487,761				678,670				566,993				881,738
	Interest			12,421				238,810				33,615				934,262
	Commissions			—				68,382				—				189,448
	Other			492				38,779				1,599				109,864
				500,674				1,024,641				602,207				2,115,312
EXPENSES
	Interest			1,086,169				1,106,093				3,061,617				3,343,287
	Fees, partners			—				—				—				143,154
	Real estate taxes			16,128				22,239				49,056				65,651
	Operating and other			88,404				65,005				164,023				215,498
	Amortization			1,637				—				1,637				—
				1,192,338				1,193,337				3,276,333				3,767,590
				(691,664	)			(168,696	)			(2,674,126	)			(1,652,278	)
Loss from joint venture amendment				—				(5,476,752	)			—				(5,476,752	)
Loss from joint ventures				(541,618	)			(1,298,189	)			(3,235,869	)			(7,443,996	)
NET LOSS			$	(1,233,282	)		$	(6,943,637	)		$	(5,909,995	)		$	(14,573,026	)

      See notes to financial statements.

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PART I- ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

			FC-Granite,				Limited
			Inc.				Partners				Total
Balance at January 31, 1998			$	(11,560,653	)		$	3,732,051			$	(7,828,602	)
Net loss				(303,765	)			(911,294	)			(1,215,059	)
Balance at December 31, 1998				(11,864,418	)			2,820,757				(9,043,661	)
Cancellation of interest on special units				1,331,414				—				1,331,414
Net loss				(14,910,526	)			(2,820,757	)			(17,731,283	)
Balance at December 31, 1999				(25,443,530	)			—				(25,443,530	)
Net loss				(5,909,995	)			—				(5,909,995	)
Balance at September 30, 2000
	(unaudited)		$	(31,353,525	)		$	—			$	(31,353,525	)

      See notes to financial statements.

     

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PART I- ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

				Nine Months Ended
				September 30,
				2000				1999
Cash Flow from Operating Activities:
Net loss				$	(5,909,995	)		$	(14,573,026	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Forgiveness of capitalized income recognized- Silver Canyon Partnership				—				3,800,771
	Forgiveness of commission income – Silver Canyon Partnership				—				1,455,981
	Forgiveness of administration fee income – Silver Canyon Partnership				—				220,000
	Amortization				1,637				—
	Loss from joint ventures				3,235,869				7,443,996
Changes in operating assets and liabilities:
	(Increase) decrease in land and land improvements				(1,505,775	)			361,081
	Decrease in mortgage notes receivable				636,580				1,025,119
	Decrease (increase) in interest receivable				18,932				(1,882,474	)
	Decrease (increase) decrease in other assets				26,204				(704	)
	Increase in administration fee receivable				—				(45,000	)
	Decrease in accounts payable				(215,875	)			(605,871	)
	Decrease in accrued fees, partner				—				(1,060,073	)
	Increase in accrued interest				812,217				1,052,378
	Decrease in accrued real estate taxes				(23,398	)			(26,346	)
	Increase in deposits				77,172				18,421
	Increase in deferred income				—				1,165,150
		Net cash used in operating activities			(2,846,432	)			(1,650,597	)
Cash Flow from Investing Activities:
	Distribution from affiliates				300,000				—
	Advances to affiliates				(580,000	)			—
	Repayment of advances to affiliates				4,919,727				70,663
		Net cash provided by investing activities			4,639,727				70,663
Cash Flow from Financing Activities:
	Proceeds from loan payable –Sunrise Land Company				1,949,400				2,199,400
	Repayment of loan payable – Sunrise Land Company				(4,549,400	)			(2,395,951	)
	Proceeds from loan payable – Eaton Estate Partnership				—				5,302,042
	Repayment of loan payable – Eaton Estate Partnership				—				(860,290	)
	Distributed interest on special units				—				(1,072,170	)
	Proceeds from mortgage notes payable				1,993,081				—
	Repayment of mortgage notes payable				(1,358,853	)			(92,662	)
	Increase in mortgage procurement costs				(36,362	)			—
		Net cash (used in) provided by financing activities			(2,002,134	)			3,080,369

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PART I- ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

						Nine Months Ended
						September 30,
						2000				1999
(Decrease) increase in cash							(208,839	)			1,500,435
Cash at beginning of the period							3,219,145				1,430,607
Cash at end of the period						$	3,010,306			$	2,931,042
Supplemental Schedule of Non Cash Activities
	Operating Expenses
			Write off of deferred income				—			$	(7,544,412	)
			Write off of interest receivable				—			$	11,345,183
	Financing Activities
			Cancellation of interest on special units applied to loan Payable — Sunrise Land Company				—			$	(2,199,400	)
			Cancellation of interest on special units applied to Accrued Partner Fees				—			$	(204,184	)
Supplemental Disclosure of Cash Flow Information
		Cash paid during the period for:
				Interest		$	2,249,401			$	2,290,909
				Real estate taxes		$	72,454			$	91,997

      See notes to financial statements.

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PART I — ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

NOTE A — NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION

Granite Development Partners, L.P. (“Partnership”), is engaged in the business of investing in, acquiring, owning, developing, selling and otherwise disposing of undeveloped and developed land acquired by the Partnership.

The sole general partner of the Partnership is FC-Granite, Inc., an Ohio corporation (“FC-Granite”). FC-Granite is a wholly owned subsidiary of Sunrise Land Company (“Sunrise”). The Partnership is the owner of Granite Silver Development Partners, L.P., the managing partner in the Silver Canyon Partnership (“SC Partnership”).

Unaudited Interim Financial Statements

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 three and nine month periods ended September 30, 2000 were of a normal recurring nature. Results of operations for the three and nine month periods ended September 30, 2000 are not necessarily indicative of results of operations which may be expected for the full year.

Certain information and footnote disclosures, which are normally included in financial statements of the Partnership 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 December 31, 1999 Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Silver Canyon Partnership

During 1999, American Nevada Seven Hills Limited Partnership (“ANC”), the partner in SC Partnership responsible for the onsite improvements in the Seven Hills project, identified costs in excess of budget to complete the project. To minimize the impact of these excess costs, ANC and the Partnership entered into an agreement (“Agreement”) which modified certain terms of the Silver Canyon Partnership Agreement.

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PART I — ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

NOTE A — NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION

The Agreement to the Silver Canyon Partnership Agreement includes the following provisions:

1.	ANC will assign all of its future and past commissions, fees, and distributions relating to loans, capital calls and interest thereon to the SC Partnership. Amounts previously paid will be deemed return of capital.
2.	ANC will fund one-half of the settlement amounts for the two lawsuits that have been settled (see Note G).
3.	The Partnership will fund any future settlement for the outstanding lawsuit (see Note G) but will receive a priority distribution to cover such capital contribution.
4.	After the priority distribution in #3, ANC and the Partnership will receive distributions pari passu until such time that ANC has recovered its entire cash investment except for $750,000.
5.	Thereafter, the Partnership will receive all distributions from SC Partnership until it has recovered its entire capital account. To the extent the Partnership does not recover its entire capital account, ANC will negotiate in good faith as to whether ANC should fund one-half of the outstanding lawsuit in #3.
6.	After the Partnership has recovered its entire capital account, ANC and the Partnership will share all remaining distributions pari passu.

As a result of the above Agreement, FC-Granite is recognizing 100% of the SC Partnership losses.

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. 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.

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PART I — ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

NOTE B — SENIOR NOTES PAYABLE (continued)

Additionally, the Partnership may defer two interest payments if minimum working capital, as defined, falls below $5,000,000. During the period interest payments are deferred, interest shall accrue at 12.83% and shall remain at that level until all deferred interest and interest thereon has been paid. The Partnership has not deferred interest payments on the Senior Notes payable.

NOTE C — MORTGAGE NOTES PAYABLE

In August 2000, the Partnership obtained a construction loan agreement for the Thornbury development. In addition, the proceeds were utilized to repay the construction loan that had a $528,961 balance at December 31, 1999 and bore interest at prime (8.5% at December 31, 1999) plus one-half of one percent (1/2%). The loan amount is not to exceed $3,500,000 with a maturity date of August 1, 2004. The principal outstanding will bear interest at the prime rate (9.5% at September 30, 2000). The amount outstanding under this loan agreement was $1,163,189 at September 30, 2000.

NOTE D — PARTNERS’ SPECIAL UNITS

According to the original Partnership Agreement, until the Senior Notes are paid in full, the $9,000,000 of partners’ special units bear interest at 10.83% and the interest will be paid pari passu with the interest on the Senior Notes. During 1999, FC-Granite, the holder of the special units, modified the interest arrangement as a result of the SC Partnership excess costs discussed in Note A and their impact on the Partnership. As a result, interest has not been accrued for the nine month period ended September 30, 2000.

NOTE E — TRANSACTIONS WITH AFFILIATES

FC-Granite and Sunrise are reimbursed for all direct costs of operations of the Partnership’s affairs and development activities.

Originally, FC-Granite was to be paid a monthly administrative fee as compensation for its services in administrating the business of the Partnership, which is equal to one-ninth of 1% of the book value of the Partnership’s properties as defined. As a result of the SC Partnership excess costs and their impact on the Partnership, FC-Granite modified the administrative fee arrangement to eliminate administrative fees beyond June 30, 1999. Therefore, no administrative fees were accrued for the nine months ended September 30, 2000. Total administrative fees accrued for the nine months ended September 30, 1999 were $79,126.

Originally, Sunrise was to be paid a semi-annual development fee equal to 4% of gross revenues as compensation for its services in managing the development of the Partnership’s properties. As a result of the SC Partnership excess costs and their impact on the Partnership,

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PART I — ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

NOTE E — TRANSACTIONS WITH AFFILIATES (continued)

Sunrise modified the development fee arrangement to eliminate development fees beyond June 30, 1999. Therefore, no development fees were earned or accrued for the nine months ended September 30, 2000. Total development fees accrued for the nine months ended September 30, 1999 were $34,148.

Originally, FC-Granite was to be paid a monthly real estate commission equal to 3.5% of gross sales as compensation for its conducting marketing and sales duties and authorization of sales contracts. As a result of the SC Partnership excess costs and their impact on the Partnership, FC-Granite modified the real estate commissions arrangement to eliminate real estate commissions beyond June 30, 1999. Therefore, no real estate commissions were earned or accrued for the nine months ended September 30, 2000. Total real estate commissions accrued for the nine months ended September 30, 1999 were $29,880.

Based on the terms of the Agreement, the Partnership’s commission equal to 1.67% of SC Partnership’s gross sales as compensation for the Partnership’s services in conducting marketing and sales duties and authorization of sales contracts was reapplied as payments on the amounts the Partnership has loaned SC Partnership (See Note A). There were no commissions earned or accrued for the nine months ended September 30, 2000 and $189,448 was earned during the nine months ended September 30, 1999.

Based on the terms of the Agreement, the Partnership’s monthly administrative fee in the amount of $5,000 per month has been waived. There were no administrative fees earned or accrued for the nine months ended September 30, 2000 or for the nine months ended September 30, 1999.

During the nine months ended September 30, 2000, the Partnership borrowed $1,949,400 from Sunrise to fund development expenditures and repaid $4,549,400.

The corporate parent of Sunrise has committed to fund any cash contributions necessary for the Partnership to meet its obligations under the 2000 Business Plan of SC Partnership through March 31, 2001.

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PART I — ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

NOTE F — INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

Silver Canyon Partnership

The Partnership has a 33 1/3% interest in SC Partnership. The Partnership’s investment in SC Partnership at September 30, 2000 and December 31, 1999 was $(9,936,851) and $(6,600,961), respectively.

The Partnership has advanced $22,294,096 at September 30, 2000 and $26,633,823 at December 31, 1999 to the SC Partnership. The net decrease of $4,339,727 is comprised of $4,919,727 of repayments in accordance with the Agreement offset by a capital call of $580,000. Pursuant to the Amended and Restated Partnership Agreement for SC Partnership, the Partnership’s original obligation to make loans to SC Partnership was capped at $19,443,198. This agreement also provides that the Partnership is to provide up to two-thirds of $9,000,000 as additional loans as funds are required. Based on the Agreement, the above advances to SC Partnership shall not bear interest. All accrued and unpaid interest has been waived as of December 31, 1999. No interest payments have been made historically. Originally, pursuant to the Amended and Restated Partnership Agreement for SC Partnership, funds advanced to SC 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 (9.5% at September 30, 2000) plus 1  3/4%. Until the Agreement discussed in Note A, interest income was deferred by the Partnership until the interest capitalized on SC Partnership was recognized as cost of sales by SC Partnership.

There was no interest or accrued fees for the nine months ended September 30, 2000. Interest recognized as income for the nine months ended September 30, 1999 was $564,244.

In January 1999, the SC Partnership obtained financing from Ohio Savings Bank for an aggregate amount not to exceed $12,000,000. Proceeds were used to repay a loan from GMAC. The loan agreement contains two debt service coverage ratios, which requires SC Partnership to maintain a certain level of net worth, as defined. Ohio Savings Bank has re-defined net worth for the purposes of the two debt service coverage ratios to include the debt that SC Partnership owes to the Partnership. Ohio Savings Bank has waived this requirement for the quarter ended September 30, 2000. The loan bears interest at the rate of prime (9.5% at September 30, 2000 and 8.5% at December 31, 1999) plus 1%.

During 1999, American Nevada Seven Hills Limited Partnership (“ANC”), the partner in SC Partnership responsible for the onsite improvements in the Seven Hills project, identified costs in excess of budget to complete the project. Prior year gross margins were reversed and no gross margins were recorded on 1999 sales.

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PART I — ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

NOTE F — INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (continued)

Since the second quarter of 1999, when estimated project costs were revised, SC partnership has identified potential improvements in the estimated cost to complete the Seven Hills project. The management of SC Partnership believes that it is premature to recognize gross margins for this project at this time primarily because of the speculative nature of future land sales. The significant portion of the remaining potential land sales in Seven Hills consists of estate lots, which are higher priced lots sold to individuals as opposed to lower priced lots sold in bulk to production home builders. Uncertainties in current and future economic conditions and the large number of estate lots yet to be sold make it very difficult to estimate accurate future sales prices and gross margins. As a result, no gross margins were recorded on sales in the first three quarters of 2000.

Shown below is the statement of operations for the Silver Canyon Partnership:

					Nine months ended
					September 30,
					2000				1999
REVENUES
	Operating income (loss)				$	206,891			$	(17,518,905	)
EXPENSES
	Fees, partners					—				50,000
	Commissions					943,631				1,517,911
	Legal and professional					1,774,767				4,127,267
	Travel and entertainment					45,601				23,236
	Operating and other					652,502				604,296
	Depreciation and amortization					126,280				64,268
			Subtotal			3,542,781				6,386,978
NET LOSS						(3,335,890	)			(23,905,883	)
Other capital transactions resulting from the
Agreement
		Land inventory adjustment				—				5,054,279
		Fees and commissions adjustment				—				6,110,701
						—				11,164,980
		Net change in SC Partnership capital			$	(3,335,890	)		$	(12,740,903	)

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PART I — ITEM 1. FINANCIAL INFORMATION (continued)

GRANITE DEVELOPMENT PARTNERS, L.P.

NOTE F — INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (continued)

Eaton Estate Partnership

The Partnership has a 30% interest in Eaton Estate Partnership. Eaton Estate Partnership is a 623 acre, 1,575 unit development with five remaining units. The Partnership’s investment in Eaton Estate Partnership at September 30, 2000 and December 31, 1999, was $1,948,657 and $2,148,635, respectively.

For the nine months ended September 30, 2000, the Eaton Estate Partnership generated income of $333,405 of which $100,022 has been recorded by the Partnership under the equity method. For the nine months ended September 30, 1999, the Eaton Estate Partnership generated income of $509,532 of which $152,860 has been recorded by the Partnership under the equity method.

NOTE G — LITIGATION

The Partnership is involved in various litigation claims related to its operations. 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. The Partnership and other defendants deny that any commission has been earned by the Plaintiff. Legal counsel of the Partnership filed a motion for summary judgement which was denied on March 29, 1999. Trial is scheduled for sometime in the trial session which will start in January 2001.

In Henderson, Nevada, SC Partnership is developing the Seven Hills project next to a golf course. As previously reported, several lawsuits filed by homebuilding companies relating to the right to play on the golf course have been settled. One remaining lawsuit has been settled in principle.

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PART I — ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

      The following discussion and analysis of Granite Development Partners, L.P. (“Partnership”), should be read in conjunction with the audited financial statements as of December 31, 1999 contained in the Annual Report on Form 10-K.

Results of Operations

      For the nine months ended September 30, 2000 and 1999, the Partnership reported net losses of $5,909,995 and $14,573,026, respectively. The decrease in net loss is primarily the result of a net loss from joint ventures of $3,235,869 for the nine month period ended September 30, 2000 versus $7,443,996 for the nine month period ended September 30, 1999 plus a joint venture amendment loss of $5,476,752 recorded in the nine month period ended September 30, 1999. The loss from joint ventures decrease is primarily attributed to the decrease in Silver Canyon Partnership ("SC Partnership") cost of sales, interest, commission, fees and legal expenses for the nine months ended September 30, 1999 compared to the nine months ended September 30, 2000. The 1999 loss from joint venture amendment of $5,476,752 is the result of the Partnership forgiving SC Partnership interest, commissions and fee income. The decrease in net loss is partially offset by a decrease in interest income to $33,615 for the nine months ended September 30, 2000, from $934,262 for the nine months ended September 30, 1999. See interest income discussion below.

      The loss from joint ventures for the nine months ended September 30, 1999 resulted primarily from the SC Partnership’s recording zero gross margins on the Seven Hill project. The zero gross margins are the result of SC Partnership’s 1999 extensive review of project costs which revealed an increase in the scope of landscape and greenbelt improvements for the balance of the property as well as increases in parcel development costs in excess of budget. Since the second quarter of 1999, when estimated project costs were revised, SC Partnership has identified potential improvement in the estimated cost to complete the Seven Hills project. The management of SC Partnership believes that it is premature to recognize gross margins for this project at this time primarily because of the speculative nature of future land sales. The significant portion of the balance of land sales in Seven Hills consists of estate lots, which are higher priced lots sold to individuals as opposed to lower priced lots sold in bulk to production home builders. Uncertainties in current and future economic conditions and the large number of estate lots yet to be sold make it very difficult to estimate accurate future sales prices and gross margins. No gross margins were recorded on sales in the first three quarters of 2000.

      As a result of the excess budgeted costs identified in 1999, American Nevada Seven Hills Limited Partnership (“ANC”), the partner in SC Partnership responsible for the on site improvements in the Seven Hills project and the Partnership entered into an agreement (“Agreement”) which modified certain terms of the Silver Canyon Partnership Agreement. The intent of the Agreement is to result in a more equitable sharing of excess costs by ANC and the Partnership to minimize the impact of the identified costs in excess of budget to complete the Seven Hills project and to preserve cash flow available to meet the Partnership’s obligations.

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      The Agreement’s impact on the Silver Canyon Partnership Agreement includes the following provisions:

1)	ANC will assign all of its future and past commissions, fees, and distributions relating to loans, capital calls and interest thereon to the SC Partnership. Amounts previously paid will be deemed return of capital.
2)	ANC will fund one-half of the settlement amounts for the two lawsuits that have been settled.
3)	The Partnership will fund any future settlement for the outstanding lawsuits but will receive a priority distribution to cover such capital contribution.
4)	After the priority distribution in #3, ANC and the Partnership will receive distributions pari passu until such time that ANC has recovered its entire cash investment except for $750,000.
5)	Thereafter, the Partnership will receive all distributions until it has recovered its entire capital account. To the extent the Partnership does not recover its entire capital account, ANC will negotiate in good faith as to whether ANC should fund one-half of the outstanding lawsuit in #3.
6)	After the Partnership has recovered its entire capital account, ANC and the Partnership will share all remaining distributions pari passu.

      The Partnership recorded sales of $1,846,300 for the nine month period ended September 30, 2000 versus $3,613,680 for the nine month period ended September 30, 1999. During the nine months ended September 30, 2000, the Partnership sold nine lots in the Thornbury development in Solon, Ohio for $1,146,300 and 16 lots located in the Fairfax Meadows development in Medina, Ohio for $700,000. The Eaton Estate Partnership, a joint venture of the Partnership accounted for under the equity method, reported no sales for the nine months ended September 30, 2000 and 1999. The Eaton Estate Partnership has five units remaining. The Eaton Estate Partnership did have interest income for the nine months ended September 30, 2000 and 1999 of $359,466 and $464,715, respectively. The SC Partnership, also a joint venture of the Partnership accounted for under the equity method, reported sales of 239 lots for $23,930,183 for the nine months ended September 30, 2000 versus 148 lots for $13,519,705 for the nine months ended September 30, 1999.

      As of November 10, 2000, the following significant sales were under contract: 38 lots in the Fairfax development in Medina, Ohio for $1,668,000, 30 lots in the Thornbury development in Solon, Ohio for $3,263,400, and 138 lots in the Seven Hills development in Henderson, Nevada for $6,080,208.

      Interest income totaled $33,615 for the nine months ended September 30, 2000 versus $934,262 for the nine months ended September 30, 1999. Interest income historically was comprised of interest earned on notes receivable from the sales of developed property and funds advanced to the joint ventures. Interest income earned on funds advanced to SC Partnership was deferred and recognized as sales occured. As a result of the Agreement, interest income on funds advanced to SC Partnership is no longer payable. As a result, no interest was recorded for the nine months ended September 30, 2000. Interest of $3,800,771 earned in the nine months ended September 30, 1999 and in previous years was reapplied as repayment of partner loans and

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capital. Interest income earned on funds advanced to the SC Partnership that was previously deferred was reversed in the period ending September 30, 1999.

      Based on the terms of the Agreement, there was no commission income earned for the nine months ended September 30, 2000 as compared to $189,448 for the nine months ended September 30, 1999. Commission income earned from the SC Partnership during the nine months ended September 30, 1999 and in prior years in the amount of $1,455,981 has been reapplied as repayment of partner loans and capital.

      Other income totaled $1,599 for the nine months ended September 30, 2000 versus $109,864 for the nine months ended September 30, 1999. Other income for the nine months ended September 30, 1999 is mainly deferred development fee income from SC Partnership. Development fee income earned during the nine months ended September 30, 1999 and in prior years in the amount of $220,000 has been reapplied as repayment of partner loans and capital.

      The interest, commission, and development fee income in the amounts of $3,800,771, $1,455,981, and $220,000 respectively, recorded in the statement of operations for the nine months ended September 30, 1999 and in prior years was reversed through the statement of operations during the period ended September 30, 1999. The total amount of $5,476,752 was recorded as loss from joint venture amendment in the statement of operations.

Financial Condition and Liquidity

      Net cash used in operating activities was $2,846,432 for the nine months ended September 30, 2000 as compared to $1,650,597 for the nine months ended September 30, 1999. The increase in net cash used in operating activities is primarily the result of an increase in land and land improvements of $1,505,775 for the nine months ended September 30, 2000 as compared to a decrease of $361,081 for the nine months ended September 30, 1999. This increase was partially offset by a decrease in accounts payable of $215,875 for the nine months ended September 30, 2000 versus a decrease of $605,871 for the nine months ended September 30, 1999; an increase in deposits of $77,172 for the nine months ended September 30, 2000 versus an increase of $18,421 for the nine months ended September 30, 1999; and a decrease in other assets of $26,204 for the nine months ended September 30, 2000 compared to an increase of $704 for the nine months ended September 30, 1999.

      Net cash provided by investing activities was $4,639,727 for the nine months ended September 30, 2000 as compared to $70,663 for the nine months ended September 30, 1999. The net cash provided for the nine months ended September 30, 2000 consists of a cash distribution of $300,000 from Eaton Estate Partnership and $4,919,727 in repayments of funds advanced to the SC Partnership. Pursuant to the Agreement, ANC has assigned all future commissions to the Partnership, which are deemed to be repayments of funds advanced. Partially offsetting these repayments is a capital call of $580,000. Net cash provided by investing activities was $70,663 for the nine months ended September 30, 1999, which were payments made by a defaulting partner for a shortfall loan made by the Partnership to SC Partnership in fiscal year 1998.

      Net cash used in financing activities was $2,002,134 for the nine month period ended September 30, 2000 as compared to net cash provided by financing activities of $3,080,369 for the nine month period ended September 30, 1999. The net cash used during the nine month

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period ended September 30, 2000 was primarily the result of funds repaid to Sunrise Land Company of $4,549,400 and paydowns of the construction mortgage note payable for the Thornbury development of $1,358,853. These cash uses were partially offset by additional borrowings from the Sunrise Land Company of $1,949,400 and proceeds from the Thornbury development loan of $1,993,081. The net cash provided during the nine month period ended September 30, 1999 was primarily the result of funds advanced from Eaton Estate Partnership of $5,302,042 to fund development expenditures, the repayment of a $2,395,951 loan payable from Sunrise Land Company, and payment of interest on partners’ special units of $1,072,170. The Partnership subsequently borrowed an additional $2,199,400 from Sunrise Land Company to fund development expenditures. The Partnership had adequate funds available to make the semi-annual payment of interest on the Senior Notes on May 15, 2000. The Partnership has adequate funds to make the next scheduled payment due November 15, 2000.

      The corporate parent of Sunrise Land Company has committed to fund any cash contributions necessary for the Partnership to meet its obligations under the 2000 Business Plan of SC Partnership through March 31, 2001.

      The Partnership is involved in various litigation claims related to its operations. 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. The Partnership and other defendants deny that any commission has been earned by the Plaintiff. Legal counsel of the Partnership filed a motion for summary judgement which was denied on March 29, 1999. Trial is scheduled for sometime in the trial session which will start in January 2001.

      In Henderson, Nevada, SC Partnership is developing the Seven Hills project next to a golf course. As previously reported, several lawsuits filed by homebuilding companies relating to the right to play on the golf course have been settled. One remaining lawsuit has been settled in principle.

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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

      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 G of the September 30, 2000 unaudited financial statements and management’s discussion and analysis of financial condition which appears in Part I of this Form 10-Q.

      (a)  Exhibits — none

      (b)  No reports on Form 8-K have been filed by the Registrant during the quarter ended September 30, 2000.

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      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: 11/14/00		/s/ Robert F. Monchein
		Robert F. Monchein President FC-Granite Inc., the general partner of Granite Development Partners, L.P.
DATE: 11/14/00		/s/ Mark A. Ternes
		Mark A. Ternes Controller FC-Granite Inc., the general partner of Granite Development Partners, L.P.

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