UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 31, ~~2003~~2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ~~__________to __________~~ to

Commission File Number 0-17517

SEA PINES ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)

South Carolina (State or other jurisdiction of incorporation or organization) 57-0845789 (I.R.S. Employer Identification No.)


South Carolina		57-0845789
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

32 Greenwood Drive, Hilton Head Island, South Carolina 29928 (Address of principal executive offices) ~~29928~~ (Zip Code)

Registrant’s telephone number, including area code (843) 785-3333

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Act.)

Yes ~~o No~~ x No o

The number of shares outstanding of the registrant’s common stock as of ~~July~~August 31, ~~2003~~2004 was 3,~~587~~600,~~400~~500.

INDEX TO FORM 10-Q
FOR SEA PINES ASSOCIATES, INC.

		Page	~~Page~~
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
	Condensed Consolidated Balance Sheets as of July 31, 2003 and October 31, 2002			4
Condensed Consolidated Balance Sheets as of July 31, 2004 and October 31, 2003			4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended July 31, 2003 and 2002			6
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended July 31, 2004 and 2003			6
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended July 31, 2003 and 2002			7
Condensed Consolidated Statements of Cash Flows for the Nine Months ended July 31, 2004 and 2003			7
Notes to Condensed Consolidated Financial Statements	~~Notes to Condensed Consolidated Financial Statements~~		8	8
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			14	15
Item 3 - Quantitative and Qualitative Disclosures About Market Risk			23	23
Item 4 – Controls and Procedures			23	24
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings			23	24
Item 2 - Changes in Securities and Use of Proceeds				24
Item 2 – Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities			23
Item 3 - Defaults Upon Senior Securities			23	25
Item 4 - Submission of Matters To A Vote of Security Holders			23	25
Item 5 - Other Information			24	25
Item 6 - Exhibits and Reports on Form 8-K				25
Item 6 - Exhibits			24
Signatures			25	26
Exhibit Index			26	27

PART I

THIS REPORT ON FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE COMPANY OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. THE INVESTMENT COMMUNITY IS CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS INCLUDE THOSE SET FORTH IN THIS REPORT, AND THOSE CONTAINED IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS REPORT ON FORM 10-Q, WHICH FACTORS ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.

Item 1. Financial Statements

Sea Pines Associates, Inc. ~~Condensed Consolidated Balance Sheets~~ ~~(In thousands)~~

			July 31,		October 31,
			2003		2002
			(Unaudited)		(Note)
Assets
Current assets:
	Cash and cash equivalents:
		Unrestricted	$	546	$	574
		Restricted		3,656		2,488
				4,202		3,062
	Accounts receivable, less allowance for doubtful accounts of $31 and $115 at July 31, 2003 and October 31, 2002, respectively			941		1,290
	Current portion of notes receivable			93		88
	Income tax receivable			54		217
	Inventories			845		859
	Prepaid expenses			595		378
Total current assets				6,730		5,894
Notes receivable, less current portion				931		1,002
Deferred loan fees, net				232		139
Other assets, net				60		60
				1,223		1,201
Real estate assets:
	Operating properties, net			43,225		44,197
	Properties held for future development			3,186		3,219
				46,411		47,416
Total assets			$	54,364	$	54,511

Condensed Consolidated Balance Sheets

~~Note:~~(In The condensed consolidated balance sheet at October 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.thousands)


	July 31,		October 31,
	2004		2003
	(Unaudited)		(Note)
Assets
Current assets:
Cash and cash equivalents:
Unrestricted	$	222	$	471
Restricted		5,419		3,571

		5,641		4,042
Accounts receivable, less allowance for doubtful accounts of $35 at July 31, 2004 and October 31, 2003		1,417		1,420
Inventories		822		792
Prepaid expenses and other current assets		594		360

Total current assets		8,474		6,614

Deferred loan fees, net		239		279
Other assets, net		61		60

		300		339
Real estate assets:
Operating properties, net		41,271		42,675
Properties held for future development		3,186		3,186

		44,457		45,861

Total assets	$	53,231	$	52,814


Note:		The condensed consolidated balance sheet at October 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See accompanying notes.

Sea Pines Associates, Inc. ~~Condensed Consolidated Balance Sheets~~ ~~(In thousands, except share amounts)~~

		July 31,			October 31,
		2003			2002
		(Unaudited)			(Note)
Liabilities and shareholders’ equity
Current liabilities:
	Accounts payable and accrued expenses	$	3,444		$	3,298
	Accrued litigation		8,129			—
	Advance deposits		3,588			2,410
	Current portion of deferred revenue and other long-term liabilities		287			373
	Current portion of long-term debt		1,186			1,142
	Total current liabilities		16,634			7,223
Long-term debt, less current portion			31,983			32,398
Interest rate swap agreement			1,897			2,277
Deferred revenue and other long-term liabilities			618			793
Trust preferred securities			2,480			2,480
Total liabilities			53,612			45,171
Commitments and contingencies
Shareholders’ equity:
	Series A cumulative preferred stock, no par value, 2,000,000 shares authorized; 220,900 shares issued and outstanding at July 31, 2003 and October 31, 2002, respectively (liquidation preference of $1,679 at July 31, 2003 and October 31, 2002, respectively)		1,294			1,294
	Series B junior cumulative preferred stock, no par value, 20,000 shares authorized; none issued or outstanding		—			—
	Common stock, 23,000,000 shares authorized; no par value; 3,587,400 and 3,573,400 shares issued and outstanding at July 31, 2003 and October 31, 2002, respectively		7,916			7,759
	Unearned stock compensation		(286	)		(235	)
	Retained (deficit) earnings		(8,172	)		522
Total shareholders’ equity			752			9,340
Total liabilities and shareholders’ equity		$	54,364		$	54,511

Condensed Consolidated Balance Sheets

~~Note:~~(In ~~The condensed consolidated balance sheet at October 31~~thousands, ~~2002~~except ~~has~~share been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.amounts)


	July 31,			October 31,
	2004			2003
	(Unaudited)			(Note)
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	5,070		$	3,543
Advance deposits		4,941			3,441
Current portion of deferred revenue and other long-term liabilities		520			296
Current portion of long-term debt		1,278			1,230

Total current liabilities		11,809			8,510

Long-term debt, less current portion		34,405			36,567
Interest rate swap agreement		996			1,744
Deferred revenue and other long-term liabilities		517			660
Payable to trust		2,480			2,480

Total liabilities		50,207			49,961

Commitments and contingencies
Shareholders’ equity:
Series A cumulative preferred stock, no par value, 2,000,000 shares authorized; 220,900 shares issued and outstanding at July 31, 2004 and October 31, 2003 (liquidation preference of $1,679 at July 31, 2004 and October 31, 2003)		1,294			1,294
Series B junior cumulative preferred stock, no par value, 20,000 shares authorized; none issued or outstanding		—			—
Common stock, 23,000,000 shares authorized; no par value; 3,600,500 shares and 3,587,400 shares issued and outstanding at July 31, 2004 and October 31, 2003, respectively		8,063			7,916
Unearned stock compensation		(302	)		(255	)
Accumulated deficit		(6,031	)		(6,102	)

Total shareholders’ equity		3,024			2,853

Total liabilities and shareholders’ equity	$	53,231		$	52,814


Note:		The condensed consolidated balance sheet at October 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See accompanying notes.

Sea Pines Associates, Inc. ~~Condensed Consolidated Statements of Operations~~ ~~(In thousands, except per share amounts)~~ ~~(Unaudited)~~

		Three Months Ended						Nine Months Ended
		July 31,						July 31,
		2003			2002			2003			2002
Revenues		$	17,545		$	18,038		$	38,318		$	38,660
Costs and expenses:
	Cost of revenues		12,659			12,593			28,156			26,916
	Sales and marketing expenses		825			677			2,535			2,242
	General and administrative expenses		1,594			1,512			4,711			4,663
	Litigation expenses		450			—			8,450			—
	Depreciation and amortization		645			647			1,939			1,943
			16,173			15,429			45,791			35,764
Income (loss) from operations			1,372			2,609			(7,473	)		2,896
Other income (expenses):
	Gain on sale of assets, net		58			—			54			4
	Interest income		25			30			181			88
	Interest rate swap agreement		356			(563	)		380			14
	Interest expense, net of amounts capitalized		(554	)		(588	)		(1,676	)		(1,824	)
			(115	)		(1,121	)		(1,061	)		(1,718	)
Income (loss) before income taxes			1,257			1,488			(8,534	)		1,178
(Provision) benefit from income taxes			—			(793	)		—			(468	)
Net income (loss)			1,257			695			(8,534	)		710
Preferred stock dividend requirements			(40	)		(40	)		(120	)		(120	)
Net income (loss) attributable to common stock		$	1,217		$	655		($	8,654	)	$	590
Net income (loss) per share of common stock, basic and diluted		$	0.34		$	0.18		($	2.42	)	$	0.17
Weighted average shares outstanding			3,585			3,561			3,577			3,566

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Nine Months Ended
	July 31,						July 31,
	2004			2003			2004			2003
Revenues:
Resort		12,871			11,730			26,912			25,120
Real estate		7,167			5,815			17,896			13,198
Cost reimbursements		1,250			1,181			2,906			2,681

		21,288			18,726			47,714			40,999

Costs and expenses:
Cost of revenues		14,018			12,588			32,381			27,903
Costs subject to reimbursement		1,250			1,181			2,906			2,681
Sales and marketing expenses		936			825			3,239			2,535
General and administrative expenses		1,654			1,665			4,965			4,964
Depreciation and amortization		633			645			1,922			1,939

		18,491			16,904			45,413			40,022

Income from operations		2,797			1,822			2,301			977
Other income (expense):
Gain on sale of assets, net		—			58			1			54
Interest income		6			25			16			181
Interest rate swap agreement		300			356			748			380
Interest expense		(652	)		(554	)		(1,905	)		(1,676	)
Merger related expense		(824	)		—			(970	)		-
Litigation expense		—			(450	)		—			(8,450	)

		(1,170	)		(565	)		(2,110	)		(9,511	)

Income (loss) before income taxes		1,627			1,257			191			(8,534	)
Provision for income taxes		—			—			—			—

Net income (loss)		1,627			1,257			191			(8,534	)
Preferred stock dividend requirements		(40	)		(40	)		(120	)		(120	)

Net income (loss) attributable to common stock	$	1,587		$	1,217		$	71			($8,654	)

Net income (loss) per share of common stock, basic and diluted	$	0.44		$	0.34		$	0.02			($2.42	)

Weighted average shares outstanding		3,601			3,585			3,593			3,577

See accompanying notes.

Sea Pines Associates, Inc. ~~Condensed Consolidated Statements of Cash Flows~~ ~~(In thousands)~~ ~~(Unaudited)~~

		Nine Months Ended
		July 31,
		2003			2002
Cash flows from operating activities:
Net (loss) income		($	8,534	)	$	710
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
	Depreciation and amortization		1,939			1,943
	Allowance for doubtful accounts		(84	)		92
	Gain on sale of asset		(54	)		(4	)
	Amortization of stock compensation		106			90
	Interest rate swap agreement		(380	)		(14	)
Changes in current assets and liabilities:
	Restricted cash		(1,168	)		(2,791	)
	Accounts and notes receivable		499			323
	Inventories		14			30
	Prepaid expenses		(217	)		(244	)
	Accounts payable and accrued expenses		106			20
	Accrued litigation		8,129			—
	Advance deposits		1,178			2,807
	Deferred revenue		(261	)		(93	)
	Income tax receivable/payable		163			923
Net cash provided by operating activities			1,436			3,792
Cash flows from investing activities:
	Proceeds from sale of assets		103			4
	Capital expenditures and property acquisitions		(952	)		(249	)
Net cash used in investing activities			(849	)		(245	)
Cash flows from financing activities:
	Payment of deferred loan fees		(124	)		(11	)
	Principal repayments of debt		(371	)		(3,279	)
	Preferred stock dividends paid		(120	)		(120	)
Net cash used in financing activities			(615	)		(3,410	)
Net (decrease) increase in unrestricted cash and cash equivalents			(28	)		137
Unrestricted cash and cash equivalents at beginning of period			574			360
Unrestricted cash and cash equivalents at end of period		$	546		$	497

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended
	July 31,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	191			($8,534	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		1,874			1,908
Amortization of deferred loan fees		48			31
Allowance for doubtful accounts		—			(84	)
Gain on sale of assets		(1	)		(54	)
Amortization of stock compensation		100			106
Interest rate swap agreement		(748	)		(380	)
Changes in current assets and liabilities:
Restricted cash		(1,848	)		(1,168	)
Accounts and notes receivable		3			499
Inventories		(30	)		14
Prepaid expenses		(234	)		(217	)
Other assets		(1	)		—
Accounts payable and accrued expenses		1,407			106
Accrued litigation		—			8,129
Advance deposits		1,500			1,178
Deferred revenue		81			(261	)
Income taxes receivable/payable		—			163

Net cash provided by operating activities		2,342			1,436

Cash flows from investing activities:
Proceeds from sale of assets		4			103
Capital expenditures and property acquisitions		(473	)		(952	)

Net cash used in investing activities		(469	)		(849	)

Cash flows from financing activities:
Payment of deferred loan fees		(8	)		(124	)
Borrowings on revolving line of credit		650			200
Repayments on judgment loan		(2,150	)		—
Repayments on term note		(614	)		(571	)
Preferred stock dividends paid		—			(120	)

Net cash used in financing activities		(2,122	)		(615	)

Net decrease in unrestricted cash and cash equivalents		(249	)		(28	)
Unrestricted cash and cash equivalents at beginning of period		471			574

Unrestricted cash and cash equivalents at end of period	$	222		$	546

See accompanying notes.

SEA PINES ASSOCIATES, INC. ~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~JULY~~NOTES ~~31,~~TO ~~2003 (Unaudited)~~ CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2004
(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements ~~for Sea Pines Associates, Inc. (the “Company”)~~ have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts for the year ended October 31, ~~2002~~2003 have been reclassified to conform with the quarter ended July 31, ~~2003~~2004 presentation. Operating results for the three-month and nine-month ~~period~~periods ended July 31, ~~2003~~2004 are not necessarily indicative of the results that may be expected for the year ending October 31, ~~2003~~2004. The Company’s financial results from its resort operations and real estate brokerage activities experience fluctuations by season. The period from November through February has historically been the Company’s low resort revenue and real estate sales season, and the period from March through October has historically been the Company’s high season. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended October 31, ~~2002~~2003.

~~The~~NOTE ~~Company’s~~2 - RESTRICTED ~~financial results from its resort operations and real estate~~CASH ~~brokerage activities experience fluctuations by season. The period from~~ ~~November through February has historically been the Company’s lowest resort~~ ~~revenue and real estate sales season, and the period from March through October has historically been the Company’s highest season.~~

~~NOTE~~Restricted 2cash -includes ~~INVENTORIES~~cash held in escrow pending real estate closings, advance deposits for home and villa rentals, and rental receipts to be paid to home and villa owners.

NOTE 3 - INVENTORIES

Inventories consist of the following (in thousands of dollars):

	July 31,		October 31,
	2003		2002
	2004		2003
Merchandise	$	~~638~~585	$	~~667~~592
Supplies, parts and accessories		35		35
Food and beverage		~~130~~151		~~115~~121
Other		4251		4244
	$	~~845~~822	$	~~859~~792

NOTE 3 4 - REAL ESTATE ASSETS

Operating properties consist of the following (in thousands of dollars):

	July 31,			October 31,
	2003			2002
	2004			2003
Land and improvements	$	26,~~802~~903		$	26,~~487~~806
Buildings		23,~~491~~712			23,~~265~~510
Machinery and equipment		1112,~~917~~090			11,~~642~~955
		62,210			61,394
		62,705			62,271
Less accumulated depreciation		(1821,~~985~~434	)		(1719,~~197~~596	)
	$	4341,~~225~~271		$	4442,~~197~~675

Properties held for future development of $3,186,000 ~~and $3,219,000~~ at July 31, ~~2003~~ ~~and~~2004 and October 31, ~~2002~~2003, respectively, consist primarily of land and certain ~~future~~ future development rights.

NOTE 4 5 - LONG-TERM ~~LITIGATION~~DEBT

OnLong ~~April 30,~~Term ~~2003,~~Debt aand ~~jury~~Line ~~verdict~~ of ~~approximately~~Credit ~~$7.8 million was rendered~~Agreements ~~against a wholly owned subsidiary of the Company in Grey Point Associates, et.~~ ~~al. vs. Sea Pines Company, Inc. (“Sea Pines”). The plaintiffs have also made a~~ motion for prejudgment interest of approximately $1,584,000, which Sea Pines is contesting. The lawsuit involved alleged breach of contract by Sea Pines related to the development of the TidePointe retirement community.

~~Sea Pines has filed post~~Long-~~trial~~term ~~motions,~~debt ~~seeking,~~consists ~~among~~of ~~other~~loans ~~things,~~obtained ~~to overturn~~under ~~the~~a ~~verdict.~~master Acredit ~~hearing~~agreement ~~on the motions was held on July 1, 2003. If~~with ~~Sea~~one ~~Pines~~bank isand ~~unsuccessful~~include ~~on these motions, it intends to appeal. The Company cannot predict~~ the ~~outcome~~following of(in ~~any~~thousands of ~~the post-trial motions or any appeal.~~dollars):

Litigation expense of $8,000,000 was recorded during the second quarter as a result of the jury verdict. The Company recorded an additional litigation expense of $450,000 during the third quarter. The accrual as of July 31, 2003 includes approximately $7,789,000 for the jury verdict, $275,000 for accrued post-judgment interest through July 31, 2003, and an estimate of legal fees incurred.


	July 31,			October 31,
	2004			2003
Term note payable to bank, bearing interest at the London Interbank Offered Rates (LIBOR) (1.36% at July 31, 2004), plus 1.40% to 1.85% collateralized by substantially all assets of the Company. Principal is payable monthly from May through October each year in amounts ranging from $205,000 in 2004 to $276,667 in 2008, with a balloon payment due on maturity. Interest is payable monthly. The note matures November 1, 2008.	$	14,183		$	14,797
$18.3 million revolving line of credit with bank, bearing interest at LIBOR (1.36% at July 31, 2004), plus 1.40% to 1.85%, collateralized by substantially all assets of the Company. Interest is payable monthly. The line matures November 1, 2007.		17,750			17,100
Judgment loan note payable to bank, bearing interest at LIBOR (1.36% at July 31, 2004), plus 2.35% collateralized by substantially all assets of the Company. Interest is payable monthly. The note matures November 15, 2005.		3,750			5,900

		35,683			37,797
Less current portion of long-term debt		(1,278	)		(1,230	)

Total long-term debt	$	34,405		$	36,567

On September 8, 2003, the Company deposited $8,177,109 with the Beaufort County Court of Common Pleas in order to stop the running of post-judgment interest and to act as an appeal bond should there be an appeal. These funds are being held in an interest-bearing escrow account pending resolution of the legal proceedings.

~~NOTE~~The 5master -credit ~~LONG-TERM~~agreement ~~DEBT~~relating ~~AND~~to ~~LINE~~the OFdebt ~~CREDIT~~described ~~AGREEMENTS~~above contains provisions and covenants which impose certain restrictions on the use of the Company’s assets, including limitations as to new indebtedness, the sale or disposal of certain assets, capital contributions and investments, and new lines of business. Effective July 22, 2004, the Company amended the master credit agreement to extend the maturity date of the judgment loan from July 30, 2005 to November 15, 2005.

~~Long-term~~The ~~debt~~Articles ~~consists~~of Incorporation of the ~~following~~Company (provide for dividends on the preferred stock of $0.722 per share per annum to be paid in ~~thousands~~arrears. The terms of ~~dollars):~~the judgment loan referred to above required the Company to cease the payment of dividends on its preferred stock and interest on its trust preferred securities. As of July 31, 2004, the Company has accrued $120,000 of dividends on the preferred stock. The Company may resume these dividend and interest payments with approval from its bank.

	July 31,			October 31,
	2003			2002
Term loan payable to bank, bearing interest at various London Interbank Offered Rates (LIBOR) (1.12% at July 31, 2003), plus 1.40% to 1.85%, collateralized by substantially all assets of the Company. Principal is payable monthly from May through October each year in amounts ranging from $190,333 in 2003 to $276,667 in 2008. Interest is payable monthly. The loan matures November 1, 2008.	$	15,369		$	15,940
$18.3 million revolving line of credit to bank, bearing interest at various London Interbank Offered Rates (LIBOR) (1.12% at July 31, 2003), plus 1.40% to 1.85% collateralized by substantially all assets of the Company. Interest is payable monthly. The line matures November 1, 2007.		17,800			17,600
		33,169			33,540
Less current portion of long-term debt		(1,186	)		(1,142	)
Total long-term debt	$	31,983		$	32,398

In addition to the term loan, the revolving line of credit and the judgment loan, the master credit agreement includes a $4,500,000 seasonal line of credit (the “Seasonal Line”). Interest on the Seasonal Line is payable monthly at LIBOR plus 1.50%. The Seasonal Line expires on November 1, 2007. Borrowings under the Seasonal Line are also collateralized by substantially all of the assets of the Company. The seasonal line had no outstanding balance at July 31, 2004 and October 31, 2003.

~~The~~Interest ~~master~~Rate ~~credit agreement relating to the debt described above contains~~Swaps ~~provisions and covenants which impose certain restrictions on the use of the~~ ~~Company’s assets, including limitations as to new indebtedness, the sale or~~ ~~disposal of certain assets, capital contributions and investments, and new lines of business.~~

The ~~master~~Company ~~credit~~has ~~agreement~~two ~~also~~interest ~~contains~~rate ~~representations~~swap ~~and~~agreements. ~~warranties~~The ~~which are~~first ~~required~~interest torate swap beagreement ~~maintained~~effectively ~~and~~fixes ~~covenants~~the ~~with~~interest ~~which~~rate ~~the~~on ~~Company~~an is$18,000,000 ~~required~~notional toprincipal ~~comply~~amount at 5.24% Asplus a ~~result~~credit ofmargin ~~the~~ranging ~~litigation~~from ~~described~~1.40% into ~~Note~~1.85% until 4, the ~~Company~~maturity ~~was, as~~date of ~~April 30~~the agreement, ~~2003~~November 10, in2005. ~~breach~~The ofsecond interest ~~certain~~rate ofswap ~~such~~agreement ~~representations~~effectively ~~and warranties~~fixes ~~and~~the ininterest ~~violation~~rate ofon ~~certain~~a $6,000,000 ofnotional ~~such~~principal ~~covenants~~amount at 6.58% Inplus ~~June~~a ~~2003,~~credit ~~the bank~~margin ~~signed~~ranging afrom 1.40% ~~waiver~~to in1.85% ~~which~~until the ~~bank~~maturity ~~waived~~date ~~retroactively~~of to the ~~filing~~agreement, ~~of the~~November 1, ~~complaint~~2005. The Company reports changes in the ~~litigation~~value ~~all~~of ~~events~~its ofinterest ~~default~~rate ~~arising~~swap ~~under~~agreements ~~the~~in ~~loan~~its operations. The ~~agreement~~Company asrecorded ainterest ~~result~~rate ofswap ~~the~~agreement ~~litigation~~income of $748,000 ~~including~~during the first ~~rendering~~nine ofmonths 2004. During the ~~verdict and~~first ~~any~~nine ~~judgment~~months ~~that~~2003 ~~may~~interest berate ~~entered~~swap agreement ~~thereon~~income totaling $380,000 was recorded.

InTrust ~~July~~Preferred ~~2003, the Company completed a modification to its master credit~~Securities ~~agreement. The modification included revisions to certain loan covenants and~~ ~~representations and waived certain loan covenants for the year ending October~~ ~~31, 2003.~~

Sea Pines Associates Trust I (the “Trust”) holds certain company debentures. Interest on the debentures is used by the Trust to pay interest on the trust preferred securities issued by the Trust. The trust preferred securities bear interest at 9.5% per annum with payments due quarterly, nine months in arrears, commencing January 31, 2001. The trust preferred securities mature on January 31, 2030. The Company has the right to redeem the trust preferred securities as specified in the indenture agreement. The interest payments on the trust preferred securities are subordinate in right of payment to all senior debt of the Company. Interest payments on the trust preferred securities have been suspended as a result of restrictions imposed by the judgment loan, and, therefore, the Company has twenty-one months of interest accrued as of July 31, 2004. As a result of this suspension, the trust preferred securities are currently bearing interest at the penalty rate of 11.51%. The Company deconsolidated the Trust on November 1, 2003.

~~The~~NOTE modification provided for a Judgment Loan Facility (the “Judgment Loan”) in the amount of up to $8,000,000. This loan facility may only be used to pay for expenses related to the litigation described in Note 4. Interest on the facility is payable monthly at various London Interbank Offered Rates (LIBOR) plus 2.35%. Borrowings under the Judgment Loan are collateralized by substantially all assets of the Company. If amounts advanced under the Judgment Loan are $4,000,000 or more, the Company will be required to cease the payment of dividends on its preferred stock (except the previously declared dividends are scheduled to be paid on October6 ~~15, 2003) and interest on its junior subordinated debentures. The facility matures on July~~- ~~30,~~INCOME ~~2005. As of~~TAXES ~~July 31, 2003, the Judgment Loan had no outstanding balance. On September 8,~~ ~~2003, $8,000,000 was drawn on the loan facility and that amount was part of the~~ ~~$8,177,109 in funds that were deposited with the Beaufort County Court of Common Pleas (see Note 4).~~

InThe ~~addition~~Company tohas ~~the~~not ~~term~~recorded ~~loan,~~any ~~the~~income ~~revolving~~tax ~~line~~provision offor ~~credit and~~ the ~~Judgment Loan,~~nine ~~the~~months ~~master credit agreement includes a $4,500,000 seasonal line of credit~~ended ~~(the “Seasonal Line”). Interest is payable monthly at LIBOR plus 1.50%. The Seasonal Line expires on November~~July 131, ~~2007.~~2004 ~~Borrowings~~since ~~under~~ the ~~Seasonal~~Company ~~Line are~~has ~~also~~sufficient ~~collateralized~~net byoperating ~~substantially~~losses, ~~all~~which ~~of the assets of the Company. As~~are ofcurrently ~~July 31,~~fully ~~2003 and October 31~~reserved, ~~2002,~~that ~~the~~would ~~Seasonal~~offset ~~Line~~projected ~~had~~taxable ~~no outstanding balance~~income.

~~The~~NOTE Company has two interest rate swap agreements. The first interest rate swap agreement effectively fixes the interest rate on an $18,000,000 notional principal amount at 5.24% plus a credit margin ranging from 1.40% to 1.65% until the maturity date of the agreement, November7 ~~10, 2005. The lender has the option of calling the swap agreement on November~~- ~~10,~~EARNINGS ~~2003.~~PER ~~The second~~SHARE ~~interest rate swap agreement effectively fixes the interest rate on a~~ ~~$6,000,000 notional principal amount at 6.58% plus a credit margin ranging from~~ ~~1.40% to 1.65% until the maturity date of the agreement, November 1, 2005 (see Note 7).~~

NOTE 6 - EARNINGS PER SHARE

Income (loss) per share of common stock is calculated by dividing net income or loss after preferred stock dividend requirements by the weighted average number of outstanding shares of common stock. Basic and diluted earnings per share are identical for all periods presented. Potentially dilutive securities consist of additional shares of common stock issuable when stock rights become exercisable. These contingently issuable shares have not been included in basic or diluted earnings per share as the stock rights are not yet exercisable.

NOTE 7 8 - COMMITMENTS ~~INTEREST~~AND ~~RATE SWAP AGREEMENTS~~CONTINGENCIES

InOn ~~accordance~~January 23, ~~with~~2004, ~~Statement~~Prudential-Bache/Fogelman ofHarbour ~~Financial~~Town ~~Accounting~~Properties, ~~Standard No~~L. ~~133,~~P. ~~Accounting~~(“Prudential-Bache/Fogelman”) ~~for~~filed ~~Derivative~~a ~~Instruments~~complaint ~~and~~in ~~Hedging~~the ~~Activities~~United ~~(“SFAS~~States ~~133”)~~District Court, District of South Carolina, Beaufort Division, naming the Company ~~records~~and Sea ~~the~~Pines ~~fair~~Company, ~~market~~Inc. ~~value~~as ofdefendants, ~~the~~and ~~interest~~seeking ~~rate~~a ~~swaps~~declaratory onjudgment ~~its~~that ~~consolidated~~Prudential-Bache/Fogelman ~~balance~~is ~~sheet.~~the Onowner anof ~~ongoing~~certain ~~basis~~trademarks, an injunction prohibiting the Company ~~adjusts~~and ~~the balance~~Sea ~~sheet~~Pines toCompany, ~~reflect~~Inc. ~~the~~from ~~current~~making ~~fair~~any ~~market~~claims ~~value~~of ownership of the ~~interest~~trademarks ~~rate swap~~and ~~agreements.~~an ~~The~~unspecified ~~interest~~amount ~~rate~~of ~~swap~~compensatory ~~agreements~~and punitive dodamages ~~not~~based ~~qualify~~on ~~for~~allegations ~~hedge accounting~~of aswrongful ~~defined~~interference byin Prudential-Bache/Fogelman’s ~~SFAS~~prospective ~~133,~~business ~~and~~relations. ~~accordingly,~~An ~~the~~Order ~~change~~of Dismissal inwas ~~the~~entered ~~fair value~~in ofthis ~~the~~matter ~~derivative~~on isJuly 22, ~~immediately~~2004. ~~recognized~~Under in the ~~consolidated~~terms ~~statement~~ of ~~operations.~~the Order, ~~The~~if ~~Company~~the ~~recorded~~parties ~~$356,000~~have ofnot ~~income~~consummated ~~and~~a ~~$563,000~~settlement ofwithin ~~expense~~60 days, either inparty ~~the~~may ~~consolidated~~petition ~~statement~~the ofcourt ~~operations~~to ~~for~~reopen the ~~change~~matter. inAn ~~fair~~adverse ~~value~~judgment ofin ~~the~~this ~~interest~~matter ~~rate~~could ~~swap~~have ~~agreement~~a ~~for~~material ~~the~~adverse ~~quarters~~effect ~~ended~~on ~~July 31~~the Company’s financial condition, ~~2003~~results of operations and ~~2002, respectively~~cash flow.

The Company is subject to claims and suits in the ordinary course of business. In management’s opinion, except as noted above, such currently pending claims and suits against the Company will not, in the aggregate, have a material adverse effect on the Company.

NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS

In response to a Financial Accounting Standards Board (“FASB”) staff announcement in November 2001, and in accordance with the Emerging Issues Task Force (“EITF”) Issue No. 01-14, “Income Statement Characterization of Reimbursements received for ‘Out-Of-Pocket’ Expenses Incurred,” which was issued in January 2002, the Company began recording the reimbursements of costs incurred on behalf of other parties (e.g. villa owners, real estate agents) received as cost reimbursements revenues and the costs incurred on behalf of other parties as costs subject to reimbursements in the year ended October 31, 2003. These costs relate primarily to situations where the Company has discretionary responsibility to procure and manage the resources in performing its services under certain contracts. Comparative financial statements for the prior periods have been reclassified to conform with this presentation in the 2004 financial statements. Since the reimbursements are made based upon the costs incurred with no added margin, the adoption of this guidance had no effect on the Company’s financial position or result of operations.

~~NOTE~~In 8January 2003, -the ~~PROPERTY~~FASB ~~TAX~~issued FASB Interpretation 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” In December 2003, the FASB issued a Revised Interpretation on FIN 46 (“Revised Interpretation”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company adopted the Revised Interpretation on November 1, 2003. The only effect was the deconsolidation of the Sea Pines Associates Trust I, which was offset by the Company’s recording of a liability for amounts due to the trust. The net impact of deconsolidation did not have any impact on the Company’s financial position or results of operations.

~~The~~NOTE ~~Company~~10 - BUSINESS ~~was~~SEGMENT ~~involved in an administrative law proceeding involving the~~INFORMATION ~~valuation of the three golf courses owned by the Company for property tax~~ ~~purposes. The Company previously accrued its property tax expense based on the~~ valuation originally assessed for the properties. During the third quarter 2002, the court issued a final order and decision, ultimately lowering the property taxes owed for the years 1998 through 2002. Based on this ruling and the Company’s estimate of its property tax liability, the Company lowered its property tax accrual in the third quarter 2002 by $322,000. This amount was included as a reduction to general and administrative expenses. In February 2003, the Company received a refund of property taxes paid of $304,000 plus accrued interest of $104,000. These amounts were reflected in earnings in the first quarter 2003. The property tax refund of $304,000 is reflected within general and administrative expenses, and interest income of $104,000 is reflected in interest income, in the consolidated statements of operations for the nine months ended July 31, 2003.

~~NOTE~~The 9Company -has ~~INCOME~~two ~~TAXES~~reportable business segments. The Company’s reportable segments are organized by the type of operations and include: (1) resort activities, including home and villa rental management operations, golf course and tennis center operations, food and beverage operations, inn and conference facility operations, and various other recreational activities; and (2) real estate brokerage for buyers and sellers of real estate in the Hilton Head Island, South Carolina area.

As a result of the jury verdict described in Note 4, the Company anticipates a taxable loss for fiscal 2003. The Company has not recognized any benefit for the nine months ended July 31, 2003 related to this net operating loss since the utilization of this net operating loss will depend on the amounts of taxable income generated in future periods, and those amounts are not predictable at this time.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

The Company is subject to claims and suits in the ordinary course of business. In management’s opinion, except for the litigation described in Note 4, such currently pending claims and suits against the Company will not, in the aggregate, have a material adverse effect on the Company.

NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The adoption of this standard on November 1, 2002 had no material impact on the Company’s consolidated financial statements.

In April 2002, the FASB issued SFAS 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement 13 and Technical Corrections” (“SFAS 145”). SFAS 145 rescinds SFAS 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of SFAS 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund

~~Requirements.”~~All ~~SFAS~~inter-company ~~145~~transactions ~~also~~between ~~amends~~segments ~~other~~have ~~existing~~been ~~authoritative pronouncements~~eliminated ~~to make various technical corrections, clarify meanings, or~~upon ~~describe their applicability under changed conditions~~consolidation. ~~SFAS~~Segment ~~145~~information ~~is effective for fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified~~ as ~~an extraordinary item in prior periods presented that does not meet the criteria in Accounting Principles Board Opinion No. 30, “Reporting the Results~~ of ~~Operations~~and —for ~~Reporting~~ the ~~Effects~~ ofquarters ~~Disposal of a Segment of a Business,~~ and ~~Extraordinary,~~nine ~~Unusual, and~~months ~~Infrequently~~ended ~~Occurring Events and Transactions,” for classification as an extraordinary item will be reclassified. The Company adopted SFAS 145 as of November~~July 131, ~~2002,~~2004 and ~~adoption~~2003 ofare ~~SFAS~~as ~~145~~follows ~~did~~(in ~~not~~thousands ~~have any impact on the Company’s financial position, results~~ of ~~operations or disclosures.~~dollars):

In July 2002, the FASB issued SFAS 146, “Accounting for the Cost Associated with Exit or Disposal Activities.” This statement applies to all exit or disposal activities initiated after December 31, 2002 and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. The Company will apply this accounting standard for all exit or disposal activities initiated after December 31, 2002; there has been no impact on the Company’s financial statements through July 31, 2003.


	Quarter Ended				Nine Months Ended
	July 31,				July 31,
	2004		2003		2004			2003
	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)
Revenues:
Resort	$	12,871	$	11,730	$	26,912		$	25,120
Real estate brokerage		7,167		5,815		17,896			13,198

	$	20,038	$	17,545	$	44,808		$	38,318

Cost of revenues:
Resort	$	7,721	$	7,395	$	16,363		$	15,694
Real estate brokerage		6,297		5,193		16,018			12,209

	$	14,018	$	12,588	$	32,381		$	27,903

Interest expense:
Resort	$	652	$	554	$	1,905		$	1,676

Depreciation and amortization expense:
Resort	$	617	$	624	$	1,874		$	1,885
Real estate brokerage		16		21		48			54

	$	633	$	645	$	1,922		$	1,939

Segment (loss) income before income taxes:
Resort	$	773	$	656	($	1,639	)	($	9,469	)
Real estate brokerage		854		601		1,830			935

	$	1,627	$	1,257	$	191		($	8,534	)

In November 2002, the FASB issued FASB Interpretation 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 currently requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, as of December 31, 2002, FIN 45 requires disclosures about the guarantees that an entity has issued, including a roll-forward of the entity’s product warranty liabilities. The adoption of FIN 45 did not have any impact on the Company’s financial position, results of operations or disclosures.


	As of		As of
	July 31,		October 31,
	2004		2003
	(Unaudited)		(Audited)
Identifiable assets:
Resort	$	49,338	$	49,010
Real estate brokerage		3,893		3,804

	$	53,231	$	52,814

InNote ~~December 2002, the FASB issued SFAS 148, “Accounting for Stock~~11 -Based Compensation, Transition and Disclosure.” SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure provisions of SFAS 123, “Accounting for Stock Based Compensation,” to currently require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS 148 does not amend SFAS 123 to require companies to account for their employee stock-based awards using the fair value method. However, the disclosure provisions are required for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS 123 or the intrinsic value method described in APB Opinion No. ~~25,~~Merger ~~“Accounting for Stock Issued to Employees.” Adoption of SFAS~~Agreement ~~148 did not have any impact on the Company’s financial position, results of~~ ~~operations or disclosures.~~

InOn ~~January~~July 27, ~~2003~~2004, the ~~FASB~~Company ~~issued~~entered ~~FASB~~into ~~Interpretation~~an 46agreement ~~(“FIN~~and ~~46”), “Consolidation~~plan of ~~Variable~~merger ~~Interest~~with The ~~Entities~~Riverstone Group, anLLC ~~Interpretation~~whereby ofthe ~~ARB~~Company ~~No. 51.” FIN~~would 46become ~~requires~~a ~~certain~~wholly ~~variable~~owned subsidiary ~~interest~~of ~~entities~~The toRiverstone beGroup, ~~consolidated~~LLC. byUnder the ~~primary~~ ~~beneficiary~~proposed ofmerger, holders of the ~~entity~~Company’s ifcommon ~~the~~stock ~~equity~~other ~~investors~~than in the ~~entity~~Company, doThe ~~not have~~Riverstone ~~the~~Group, ~~characteristics~~LLC, or any of atheir ~~controlling~~subsidiaries ~~financial~~or ~~interest~~holders orperfecting dotheir ~~not~~dissenters ~~have~~rights ~~sufficient~~under ~~equity~~South atCarolina ~~risk~~law ~~for~~will ~~the~~be ~~entity~~entitled to ~~finance~~receive ~~its~~$8.50 ~~activities without~~per ~~additional subordinated~~

~~financial~~share ~~support~~in ~~from~~cash, ~~other~~without ~~parties.~~interest, ~~FIN~~for 46each of istheir ~~effective~~shares ~~for~~of ~~all~~common ~~new~~stock. ~~variable~~In addition, the Company’s preferred ~~interest~~shares ~~entities~~and ~~created~~Trust orPreferred ~~acquired~~Securities ~~after~~would ~~January 31,~~be ~~2003.~~redeemed ~~For~~and ~~variable~~all dividends and interest ~~entities~~due ~~created~~on orthem ~~acquired~~would ~~prior~~be topaid ~~February 1,~~in ~~2003,~~full. ~~the~~The ~~provisions of~~merger ~~FIN~~agreement 46is ~~must~~subject beto closing ~~applied~~conditions customary for ~~the~~transactions ~~first~~of ~~interim~~this ortype, ~~annual~~including ~~period beginning~~obtaining ~~after~~the ~~June 15,~~approval ~~2003.~~of ~~There~~holders ~~has~~of ~~been~~at noleast ~~impact~~80% onof the Company’s ~~financial position~~outstanding orcommon ~~results~~stock. In oforder ~~operations~~to ~~for~~avoid having the ~~first~~merger ~~six~~agreement ~~months~~trigger ofthe ~~2003~~distribution ~~under FIN~~of ~~46.~~Series B ~~The~~preferred ~~Company~~stock ispurchase inrights under the ~~process~~Company’s ofSecond ~~evaluating~~Amended ~~FIN~~and ~~46,~~Restated ~~and~~Rights ~~its~~Agreement ~~prospective~~(“Rights ~~impact~~Agreement”), on the ~~financial~~Company ~~position~~amended ~~and~~the ~~results~~Rights ofAgreement ~~operations~~on July 27, 2004 ~~for~~so ~~variable interest~~that ~~entities~~no ~~created~~person orwould ~~acquired~~become ~~prior~~an to“Acquiring ~~February 1,~~Person” (as ~~2003.~~defined ~~The~~in ~~Company does~~the ~~not~~plan) ~~anticipate~~as the ~~adoption~~result of ~~FIN~~the 46execution toor ~~have~~delivery of, ~~any~~or ~~significant~~the ~~impact~~consummation to of the ~~Company’s~~merger ~~financial~~contemplated ~~position~~by, ~~results~~the ~~of operations or disclosures~~merger agreement.

InThe ~~April~~preliminary ~~2003,~~proxy ~~the~~statement ~~FASB~~was ~~issued~~filed ~~SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS 149 requires that contracts~~ with ~~comparable characteristics be accounted for similarly. In particular, SFAS 149 clarifies under what circumstances a contract with an initial net investment meets~~ the ~~characteristic~~Securities ~~of a derivative, clarifies when a derivative contains a financing component, amends the definition of an underlying derivative to conform it to language used in FIN 45,~~ and ~~amends~~Exchange ~~certain~~Commission ~~other~~on ~~existing pronouncements. SFAS 149 is effective for contracts entered into or modified after June~~August 3016, ~~2003, and for hedging relationships designated after June 30, 2003~~2004. ~~In addition, provisions of SFAS 149 should be~~ ~~applied prospectively. The Company does not expect the application of SFAS 149~~ ~~to have a significant impact on its financial position or results of~~ ~~operations.~~

InNote May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May12 ~~31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June~~- ~~15,~~Director ~~2003.~~Stock ItCompensation ~~is to be implemented by reporting the cumulative~~Plan ~~effect of a change in an accounting principle for financial instruments created~~ ~~before the issuance date of SFAS 150 and still existing at the beginning of the~~ ~~interim period of adoption. Restatement is not permitted. The Company does not expect the application of SFAS 150 to have a significant impact on its financial position or results of operations.~~

~~NOTE~~Effective 12October 30, 2000, the Company established a director stock compensation plan. The purpose of the plan is to enable the Company to use common stock rather than cash to compensate non-employee ~~BUSINESS~~directors ~~SEGMENT~~for ~~INFORMATION~~service to the Company and thereby foster increased stock ownership by the directors. The Company reserved 50,000 shares of common stock for issuance pursuant to grants under the plan. As of October 31, 2003, a total of 42,000 of the reserved shares had been issued. Therefore, on February 23, 2004, the Company reserved an additional 50,000 shares of common stock for issuance under the plan. On April 6, 2004, 11,000 shares were issued to the directors.

~~The~~Item ~~Company has two reportable business segments~~2. ~~The Company~~Management’s ~~reportable segments~~Discussion ~~are~~and ~~organized~~Analysis ~~by the type~~ of ~~operations~~Financial ~~and~~Condition ~~include: (1) resort activities, including home~~ and ~~villa~~Results rental management operations, golf course operations, food and beverage operations, inn and conference facility operations, and various other recreational activities; and (2) real estate brokerage for buyers and sellers of ~~real estate in the Hilton Head Island, South Carolina area.~~ Operations

14Results of Operations

~~All~~The ~~inter-company~~Company’s ~~transactions~~operations ~~between~~are ~~segments~~conducted ~~have~~primarily ~~been~~through ~~eliminated~~two ~~upon~~wholly owned ~~consolidation~~subsidiaries. ~~Segment~~Sea ~~information~~Pines asCompany, Inc. operates all of the resort assets, including a 60-room inn, conference facilities, three resort golf courses, a tennis center, home and ~~for~~villa ~~the~~rental ~~quarter~~management operations, retail sales outlets, food service operations and ~~nine~~other ~~months~~resort recreational facilities. Sea ~~ended~~Pines ~~July 31~~Real Estate Company, ~~2003~~Inc. ~~and~~is ~~2002~~a ~~are~~real asestate ~~follows~~brokerage ~~(in~~firm ~~thousands~~with of11 ~~dollars):~~offices serving Hilton Head Island and its neighboring communities.

		Quarter Ended						Nine Months Ended
		July 31,						July 31,
		2003			2002			2003			2002
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues:
	Resort	$	11,730		$	12,348		$	25,120		$	26,844
	Real estate brokerage		5,815			5,690			13,198			11,816
		$	17,545		$	18,038		$	38,318		$	38,660
Cost of revenues:
	Resort	$	8,368		$	8,520		$	18,531		$	18,633
	Real estate brokerage		4,291			4,073			9,625			8,283
		$	12,659		$	12,593		$	28,156		$	26,916
Interest expense:
	Resort	$	(554	)	$	(588	)	$	(1,676	)	$	(1,824	)
Depreciation and amortization expense:
	Resort	$	624		$	630		$	1,885		$	1,892
	Real estate brokerage		21			17			54			51
		$	645		$	647		$	1,939		$	1,943
Segment (loss) income before income taxes:
	Resort	$	656		$	731		($	9,469	)	$	95
	Real estate brokerage		601			757			935			1,083
		$	1,257		$	1,488		($	8,534	)	$	1,178

Critical Accounting Policies

		As of		As of
		July 31,		October 31,
		2003		2002
		(Unaudited)		(Audited)
Identifiable assets:
	Resort	$	51,891	$	51,859
	Real estate brokerage		2,473		2,652
		$	54,364	$	54,511

In the preparation of its financial statements, the Company applies accounting principles generally accepted in the United States. The application of generally accepted accounting principles may require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying results. The following critical accounting policies have been discussed with the Company’s audit committee.

~~Item 2.~~Revenue ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~Recognition

~~The~~Revenue ~~Company’s~~from resort operations ~~are~~is ~~conducted~~recognized ~~primarily~~as ~~through~~goods ~~two~~are ~~wholly~~sold ~~owned subsidiaries.~~and ~~Sea~~services ~~Pines Company, Inc. operates all of the resort assets,~~are ~~including~~provided ~~three~~and ~~resort~~revenue ~~golf~~from ~~courses,~~real aestate ~~tennis~~brokerage ~~center,~~is arecognized ~~home~~upon ~~and~~closing ~~villa rental~~of ~~management~~the ~~business,~~sale. ~~two~~As ~~conference facilities,~~ a ~~60-room inn~~result, ~~retail~~the ~~sales outlets,~~Company’s ~~food~~revenue ~~service~~recognition ~~operations~~process ~~and~~does ~~other~~not involve ~~resort~~significant ~~recreational~~judgments ~~facilities.~~or ~~Sea~~estimates. ~~Pines Real~~

1514

~~Estate~~Investment ~~Company,~~in ~~Inc.~~Real isEstate ~~a real estate brokerage firm with 15 offices serving~~Assets ~~Hilton Head Island and its neighboring communities.~~

~~Application~~The Company’s management is required to make subjective assessments as to the useful lives of ~~Critical~~its ~~Accounting~~depreciable ~~Policies~~assets. The Company considers the period of future benefit of the asset to determine the appropriate useful life. These assessments have a direct impact on net income.

The ~~Company’s~~estimated ~~accounting~~useful ~~policies~~lives ~~have been established to conform to accounting principles generally accepted in the United States. The preparation~~ of ~~financial statements in conformity with such principles requires management to use judgment in~~ the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied. This would result in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of the Company’s ~~results~~assets ofby ~~operations to~~class those of companies in similar businesses. Below is a discussion of the accounting policies that management considers to be critical in that they may require judgment in their application or require estimates with respect to matters that are ~~inherently~~as ~~uncertain.~~follows:

Revenue Recognition


Land improvements		15 years
Buildings		39 years
Machinery and equipment		5–7 years

~~Revenue~~In ~~from~~the ~~resort~~event ~~operations~~that ismanagement ~~recognized~~uses asinappropriate ~~goods~~useful ~~are~~lives ~~sold~~or ~~and~~methods ~~services are~~for ~~provided and revenue from real estate brokerage is recognized when the title passes to the buyer. As a result~~depreciation, the Company’s ~~revenue~~net ~~recognition~~income ~~process does~~would ~~not~~be ~~involve significant judgments or estimates~~misstated.

~~Investment~~Valuation inof Real Estate Assets

~~The~~Management ~~Company’s~~continually ~~management~~monitors isevents ~~required~~and tochanges ~~make~~in ~~subjective~~circumstances ~~assessments~~that ascould indicate tothat the ~~useful~~ ~~lives~~carrying amounts of ~~its~~the ~~depreciable~~real estate assets, both operating properties and properties held for future development, may not be recoverable. When ~~The~~there ~~Company~~are ~~considers~~indicators that the ~~period~~carrying amount of a real estate asset may not be recoverable, management assesses the recoverability of the asset by determining whether the carrying value of the real estate asset will be recovered through the undiscounted future ~~benefit~~operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate asset to ~~determine~~fair value and the ~~appropriate~~Company recognizes ~~useful~~an ~~life~~impairment loss. ~~These~~A projection of expected future cash flows ~~assessments~~requires ~~have~~management ato ~~direct~~make ~~impact~~certain onestimates. If management uses inappropriate assumptions in the future cash flow analysis, resulting in an incorrect assessment of the property’s future cash flows and fair value, it could result in the overstatement of the carrying value of real estate assets and net income of the Company. The ~~estimated~~Company ~~useful~~has ~~lives~~not ofincurred any impairment losses for the ~~Company’s~~nine ~~assets~~months byended ~~class~~July 31, ~~are~~2004 asand ~~follows:~~the year ended October 31, 2003.

Land improvements		15 years
Buildings		39 years
Machinery and equipment		5 – 7 years

InThird ~~the~~Quarter ~~event~~2004 ~~that~~Compared ~~management~~to ~~uses~~Third ~~inappropriate~~Quarter ~~useful lives or methods for~~2003 ~~depreciation, the Company’s net income would be misstated.~~

~~Valuation of Real Estate Assets~~Revenues

~~Management~~ The ~~continually~~Company ~~monitors~~reported ~~events~~revenues ~~and changes in circumstances that could indicate that the carrying amounts~~ of ~~the real estate assets~~$21,288,000 ~~both~~for ~~operating properties~~third ~~and~~quarter ~~properties~~2004, ~~held for future development~~a $2,562,000, ~~may~~or ~~not be recoverable~~13. ~~When~~7%, ~~there~~increase ~~are~~over ~~indicators~~third ~~that~~quarter ~~the~~2003. ~~carrying~~Resort ~~amounts of real estate assets may~~revenues, ~~not~~excluding becost ~~recoverable~~reimbursements, ~~management~~increased ~~assesses~~by ~~the~~$1,141,000 ~~recoverability~~or of9.7%, ~~the~~compared ~~assets by~~to ~~determining~~2003; ~~whether~~while ~~the carrying value of the~~ real estate ~~assets~~brokerage ~~will~~revenues, ~~be recovered~~excluding ~~through~~cost ~~the undiscounted future operating cash flows expected from~~reimbursements, ~~the~~improved ~~use~~by of$1,352,000, ~~the~~or ~~asset and its eventual~~23.3%.


	Three Months Ended
	July 31,
	2004		2003		Change		% Change
			(In thousands)
Resort
Golf	$	3,588	$	3,402	$	186		5.5	%
Rental management		4,997		4,776		221		4.6	%
Food and beverage		1,995		1,537		458		29.8	%
Inn at Harbour Town		899		702		197		28.1	%
Other recreation revenues		1,053		980		73		7.4	%
Other		339		333		6		1.8	%

		12,871		11,730		1,141		9.7	%
Real estate brokerage		7,167		5,815		1,352		23.3	%
Cost reimbursements		1,250		1,181		69		5.8	%

Total revenues	$	21,288	$	18,726	$	2,562		13.7	%

~~disposition.~~ The Inprimary ~~the~~factors ~~event~~contributing ~~that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets~~ to ~~fair~~ ~~value and~~ the ~~Company recognizes an impairment loss. Management has determined that there has been no impairment in the carrying value of real estate assets held by the Company at July 31~~$2, ~~2003 or October 31~~562,000 ~~2002.~~increase ~~A projection of expected future cash flows requires management to make certain estimates. If management uses inappropriate assumptions~~ in ~~the future cash~~revenues ~~flow~~were ~~analysis,~~as ~~resulting in an incorrect assessment of the property’s future~~follows: ~~cash flows and fair value, it could result in the overstatement of the carrying~~ ~~value of real estate assets and net income of the Company.~~

Results of Operations for 3rd Quarter 2003 as Compared with 3rd Quarter 2002

•		Golf revenue in the third quarter 2004 increased by $186,000, or 5.5%, as compared with the third quarter 2003. The number of resort golf rounds played at Harbour Town Golf Links during the third quarter 2004 increased by 1,072 rounds, or 16.0%, from the third quarter 2003. The average resort rate paid per round during the third quarter 2004 also increased by $2.10, or 1.4%, from the third quarter 2003. The number of resort golf rounds played at the Ocean and Sea Marsh golf courses during the third quarter 2004 increased by 840 rounds, or 4.5%, from the third quarter 2003. However, this increase in rounds played was offset by a $4.88, or 8.0%, decrease in average resort rate paid per round in the third quarter 2004 over the third quarter 2003.

•		Rental management revenue increased by $221,000, or 4.6%, during the third quarter 2004 as compared with the third quarter 2003. Total guest occupied nights during the third quarter 2004 increased by 706 nights, or 3.7%, from the third quarter 2003. The average daily rate increased by $2.07, or 0.8%, in the third quarter 2004 over the third quarter 2003.

~~Revenues~~16

~~Revenues~~• ~~for~~Food and beverage operations generated revenues of $1,995,000 in the third quarter ~~2003~~2004. ~~totaled~~This represents an increase of $17458,~~545~~000, or 29.8%, over the third quarter 2003. This increase was primarily due to a $261,000, or 70.5%, increase in revenue from catering operations, a 2$61,000, or 42.7%, ~~decrease~~increase in revenue from the Heritage Grill, an $85,000, or 13.6%, increase in revenue from the Sea Pines Beach Club, and a $36,000, or 23.5%, increase in revenue from the Harbour Town Bakery. • The Inn at Harbour Town generated revenues of $899,000 in the third quarter ~~2002~~2004. ~~revenues~~This represents an increase of $197,000, or 28.1%, ~~Resort~~over ~~revenues~~the ~~declined~~third quarter 2003. Total guest occupied nights during the third quarter increased by 963 nights, or 28.2%, from the third quarter 2003. The total paid occupancy percentage was 79.4% during the third quarter 2004, as compared to 61.9% during the third quarter 2003. The average daily rate was $190.93 during the third quarter 2004, as compared to $189.98 during the third quarter 2003. • Other recreation services revenue increased by $~~618~~73,000, or 57.04%, during the third quarter 2004 as compared with the third quarter 2003. ~~Real~~This ~~estate~~increase ~~brokerage~~is ~~revenues~~primarily the result of a $32,000, or 6.7%, increase in revenue from the Sea Pines Racquet Club and a $26,000, or 7.0%, increase in revenue from the Company’s fitness center, nature center and bike shop operations. • Other revenue increased by $6,000, or 1.8%, during the third quarter 2004 as compared with the third quarter 2003. • Real estate brokerage revenues increased by $~~125~~1,352,000, or 223.23%, during the third quarter 2004 as compared with the third quarter 2003. Real estate brokerage revenues are very closely tied to real estate sales. The ~~resort~~increase ~~revenue~~in ~~decline~~sales is ~~attributable~~ the result of favorable economic conditions, an expansion of marketing efforts to the ~~current~~mainland ~~downturn~~markets, in the ~~United~~addition ~~States~~of ~~economy~~several new agents, and athe ~~general decline~~continuation inof ~~domestic~~management’s ~~travel~~focus on listings and individual agent marketing. ~~Revenue~~• ~~changes~~Cost ~~are~~reimbursements ~~summarized~~increased by $69,000 during the third quarter 2004 as ~~follows~~compared ~~(in thousands~~with ofthe ~~dollars):~~ third quarter 2003.

		Three Months Ended
		July 31,
		2003		2002		Change			% Change
Resort
	Golf	$	3,402	$	3,600	$	(198	)		(5.5	)%
	Rental management		4,776		5,379		(603	)		(11.2	)
	Food and beverage		1,537		1,439		98			6.8
	Inn at Harbour Town		702		867		(165	)		(19.0	)
	Other recreation revenues		980		864		116			13.4
	Other		333		199		134			67.3
		$	11,730	$	12,348	$	(618	)		(5.0	)
Real estate brokerage			5,815		5,690		125			2.2
Total revenues		$	17,545	$	18,038	$	(493	)		(2.7	)%

Cost of revenues

~~Golf~~ Cost of revenues ~~decreased~~was by $~~198~~14,~~000~~018,000 orin ~~5.5%, during~~ the third quarter ~~2003~~2004, asrepresenting ~~compared~~an ~~with~~increase ~~the third quarter 2002. The number~~ of ~~resort golf rounds played at Harbour Town Golf Links during the third quarter 2003 decreased by~~ $1,~~098 rounds~~430,000, or 1411.4%, ~~from~~over the ~~same period in 2002. The number of resort golf rounds played at the Ocean and Sea Marsh golf courses during the~~ third quarter 2003. ~~decreased~~Approximately by $1,~~822 rounds~~055,000 orof ~~9%,~~this ~~from~~increase ~~the~~was ~~same~~attributable ~~period~~to ~~in 2002. This decrease~~increased ~~was~~commissions ~~slightly~~earned ~~offset~~ by areal ~~$1.82,~~estate orsales ~~3%,~~agents ~~increase~~as ina ~~average~~result ~~resort~~of ~~rate~~improved ~~paid per~~real ~~round~~estate insales ~~the~~activity. ~~third~~The ~~quarter~~remainder ~~2003,~~of ~~over~~this ~~the~~increase ~~third~~related ~~quarter~~to ~~2002~~increased resort revenue activities.

~~Rental management revenues decreased by $603,000, or 11.2%, during the third~~Expenses ~~quarter 2003 as compared with the third quarter 2002. Total guest occupied~~ ~~nights during the third quarter of 2003 were 18,833 as compared to 20,762~~ ~~during the third quarter of 2002. The average daily rate was $244.11 in the~~ ~~third quarter 2003, a decrease of $6.49, or 2.6%, from the same period in 2002.~~

17 • Sales and marketing expenses increased by $111,000, or 13.5%, and totaled $936,000 in the third quarter 2004. This increase was primarily due to the recording of $77,000 in resort marketing barter expenses, a $29,000, or 16.6%, increase in conference sales expenses and a $26,000, or 8.9%, increase in real estate marketing expenses. These increases were partially offset by a $20,000, or 5.5%, decrease in resort marketing promotions and expenses.

~~Food and beverage revenues increased by $98,000, or 6.8%, during the third~~17 quarter 2003 as compared with the third quarter 2002. This increase was primarily due to a $228,000, or 56.7%, increase in revenue from the Sea Pines Beach Club. This increase was offset by a $130,000, or 27.6%, decline in revenue from catering operations.

The Inn at Harbour Town revenues decreased by $165,000, or 19.0%, during the third quarter 2003 as compared with the third quarter 2002. Paid occupancy during the third quarter 2003 was 61.9% as compared to 74.9% during the third quarter 2002. The average daily rate was $189.98 in the third quarter 2003, as compared to $200.87 for the same period in 2002.

•		General and administrative expenses decreased by $11,000, totaling $1,654,000 for the third quarter 2004.

•		Depreciation and amortization expense decreased by $12,000 and totaled $633,000 in the third quarter 2004.

Other ~~recreation~~income ~~services revenue increased by $116,000, or 13.4%, during the~~(expense) ~~third quarter 2003 as compared with the third quarter 2002. This increase is~~ ~~primarily the result of increased revenue from tennis operations related to the~~ ~~Smith/Stearns Tennis Academy. This new academy opened in 2002 at the Sea Pines~~ ~~Racquet Club to provide world-class tennis instruction.~~

~~Other~~• ~~revenues~~The Company reports changes in the value of its interest rate swap agreements in its operations. The Company recorded interest rate swap agreement income of $300,000 in the third quarter 2004. If the swap agreements remain in effect until their expiration date in 2005, the cumulative total of all related income and expense entries will equal zero. • Interest income decreased by $19,000 during the third quarter 2004 as compared to the third quarter 2003. The decrease is primarily the result of the payoff of the note receivable that the Company held in September 2003. • Interest expense increased by $~~134~~98,000, or 6717.37%, during the third quarter ~~2003~~ 2004 as compared ~~with~~to the third quarter ~~2002~~2003. This increase is primarily ~~due~~the result of increased interest expense related to the ~~sale~~ additional debt from the judgment loan and the higher rate of ~~Company-owned~~interest ~~memberships~~on the trust preferred securities as described in Note 5 to the financial statements. • Merger related expenses totaling $824,000 were recorded during the third quarter 2004. This total included consulting, investment banking and legal expenses related to the merger agreement with The Riverstone Group, LLC. • Litigation expenses totaling $450,000 were recorded during third quarter 2003. On April 30, 2003, a jury verdict of approximately $7.8 million was rendered against a wholly owned subsidiary of the Company in Grey Point Associates, et al. v. Sea Pines ~~Country~~Company, ~~Club~~Inc. The lawsuit involved alleged breach of contract by Sea Pines related to the development of the TidePointe retirement community. On October 6, 2003, the Company agreed pursuant to the terms of a settlement agreement and release to pay $5.9 million to settle the lawsuit. The Company incurred $424,000 in legal fees and related expenses in connection with the lawsuit.

~~Real~~Income ~~estate brokerage revenues increased by $125,000, or 2.2%, during the third~~taxes ~~quarter 2003 as compared with the third quarter 2002. This increase was~~ ~~primarily the result of a 5.6% increase in sales volume in the third quarter~~ ~~2003, as compared with the third quarter 2002. This improvement is~~ ~~attributable to low mortgage interest rates and a favorable second home and real estate market.~~

~~Cost~~ The ofCompany ~~Revenues~~has not recorded any income tax provision for the third quarter 2004 since the Company has sufficient net operating losses, which are currently fully reserved, that would offset projected taxable income.

~~Cost of revenues totaled $12,659,000 in the third quarter 2003, an increase of~~18 $66,000 as compared to the same period in 2002. This increase was primarily due to increased real estate brokerage revenues which had a 73.8% cost of revenues percentage, and decreased resort revenues which had a 71.3% cost of revenues percentage.

~~Expenses~~First Nine Months 2004 Compared to First Nine Months 2003

~~Sales and marketing expenses totaled $825,000 in the third quarter 2003, an~~Revenues ~~increase of $148,000, or 21.9%, as compared to the same period in 2002. This~~ ~~increase was primarily due to increased real estate marketing costs and~~ ~~conference sales costs.~~

~~General~~ The ~~and~~Company ~~administrative~~reported ~~expenses~~revenues ~~increased~~of by $8247,~~000~~714,000 orfor ~~5.4%, during~~ the ~~third~~ ~~quarter~~first ~~2003~~nine asmonths 2004, ~~compared~~a ~~with~~$6,715,000, ~~the~~or ~~third quarter 2002~~16.4%, ~~This~~ increase ~~is primarily~~over the ~~result~~first ofnine anmonths ~~adjustment~~2003. ~~that~~Resort revenues, ~~reduced~~excluding ~~property~~cost ~~tax~~reimbursements, ~~expense~~increased by $~~322~~1,792,000, ~~during~~or ~~the~~7.1%, compared ~~third~~to ~~quarter~~2003; ~~2002~~while asreal ~~discussed~~estate inbrokerage ~~Note~~revenues, 8excluding ~~of the financial~~cost ~~statements.~~reimbursements, ~~The~~improved ~~property tax increase was offset~~ by ~~reduced~~$4,698,000, ~~bad~~or ~~debt expense and employee benefit costs during the third quarter 2003 as compared with the same period of 2002~~35.6%.

Litigation expenses of $450,000 were accrued in third quarter 2003 as discussed in Note 4 of the financial statements.


	Nine Months Ended
	July 31,
	2004		2003		Change			% Change
			(In thousands)
Resort
Golf	$	8,707	$	8,455	$	252			3.0	%
Rental management		8,053		8,091		(38	)		(0.5	%)
Food and beverage		4,344		3,202		1,142			35.7	%
Inn at Harbour Town		2,049		1,686		363			21.5	%
Other recreation revenues		3,105		2,934		171			5.8	%
Other		654		752		(98	)		(13.0	%)

		26,912		25,120		1,792			7.1	%
Real estate brokerage		17,896		13,198		4,698			35.6	%
Cost reimbursements		2,906		2,681		225			8.4	%

Total revenues	$	47,714	$	40,999	$	6,715			16.4	%

~~Depreciation~~ The ~~and~~primary ~~amortization~~factors ~~costs~~contributing ~~were~~to ~~comparable~~the ~~between~~$6,715,000 ~~the~~increase ~~third~~in ~~quarter~~revenues ~~2003~~were as ~~compared with the same period of 2002.~~follows:

•		Golf revenue in the first nine months 2004 increased by $252,000, or 3.0%, as compared to the first nine months 2003. The number of resort golf rounds played at Harbour Town Golf Links during the first nine months 2004 increased by 1,454 rounds, or 8.5%, from the first nine months 2003. This increase in rounds played was partially offset by a $2.56, or 1.7%, decrease in the average resort rate paid per round in the first nine months 2004 over the first nine months 2003. The number of resort golf rounds played at the Ocean and Sea Marsh golf courses during the first nine months 2004 increased by 1,454 rounds, or 3.3%, from the first nine months 2003. This increase in rounds played was offset by a $1.78, or 2.9%, decrease in the average resort rate paid per round in the first nine months 2004 over the first nine months 2003.

•		Rental management revenue decreased by $38,000, or 0.5%, during the first nine months 2004 as compared with the first nine months 2003. Total guest occupied nights decreased by 775 nights, or 2.1%, during the first nine months 2004 as compared with the first nine months 2003. The decrease in guest occupied nights was partially offset by a $3.15, or 1.5%, increase in the average daily rate in the first nine months 2004 over the first nine months 2003.

~~Other income (expense)~~19

~~Interest~~• ~~income~~Food and beverage operations generated revenues of $4,344,000 in the first nine months 2004. This represents an increase of $1,142,000, or 35.7%, over the first nine months 2003. This increase was primarily due to a $25722,000, ~~for~~or 60.4%, increase in revenue from catering operations, a $170,000, or 44.2%, increase in revenue from the ~~third~~Heritage ~~quarter~~Grill, a $92,000, or 30.8%, increase in revenue from the Harbour Town Bakery and a $128,000, or 17.7%, increase in revenue from the Sea Pines Beach Club. • The Inn at Harbour Town generated revenues of $2,049,000 in the first nine months 2004. This represents an increase of $363,000, or 21.5%, over the first nine months 2003. Total guest occupied nights increased by 1,730 nights, or 20.5%, during the first nine months 2004 as compared with the first nine months 2003. Total paid occupancy percentage was 61.9% during the first nine months 2004, as compared to 51.6% during the first nine months 2003. The average daily rate increased slightly to $30186.67 during the first nine months 2004, as compared to $186.04 during the first nine months 2003. • Other recreation services revenue increased by $171,000 ~~for~~, or 5.8%, during the ~~same~~first ~~period~~nine months 2004 as compared with the first nine months 2003. This increase is primarily the result of ~~2002~~a $74,000, or 10. 2%, increase in revenue from the Company’s fitness center, nature center and bike shop operations and a $72,000, or 6.3%, increase in revenue from the Sea Pines Racquet Club. • Other revenue decreased by $98,000, or 13.0%, during the first nine months 2004 as compared with the first nine months 2003. This decrease is primarily due to a reduction in licensing fee revenue from the TidePointe retirement community and decreased membership sales revenue related to the Sea Pines Country Club. • Real estate brokerage revenues increased by $4,698,000, or 35.6%, during the first nine months 2004 as compared with the first nine months 2003. Real estate brokerage revenues are very closely tied to real estate sales. The increase in sales is the result of favorable economic conditions, an expansion of our marketing efforts to the mainland markets, the addition of several new agents, and the continuation of management’s focus on listings and individual agent marketing. • Cost reimbursements increased by $225,000 during the first nine months 2004 as compared with the first nine months 2003. The increase was primarily the result of increased real estate marketing costs reimbursed by real estate agents.

~~Interest~~Cost ~~rate swap agreement income totaled $356,000 during the third quarter 2003. This income is attributable to changes in the fair value~~ of ~~the interest~~revenues ~~rate swap agreements as discussed in Note 7 of the financial statements. The~~ ~~Company recorded expense of $563,000 from the interest rate swap agreements~~ ~~during the third quarter 2002.~~

~~Interest~~ Cost ~~expense~~of ~~decreased~~revenues bywas $3432,381,000 in the first nine months 2004, representing an increase of $4,478,000, or 516.80%, ~~during~~over the ~~third~~first ~~quarter~~nine months 2003. Approximately $3,615,000 of this increase was attributable to increased ascommissions ~~compared~~earned ~~with~~by ~~the~~real ~~same~~estate ~~period~~sales ofagents ~~2002.~~as ~~This~~a ~~decrease~~result isof ~~attributable~~improved toreal ~~lower~~estate ~~interest~~sales ~~rates~~activity. ~~during~~The ~~the~~remainder ~~third~~of ~~quarter~~this ~~2003~~increase related to increased resort revenue activities.

~~Income taxes~~20

~~As a result of the jury verdict described in Note 4 of the financial~~Expenses ~~statements, the Company anticipates a taxable loss for fiscal 2003. The~~ ~~Company has not recognized any benefit for the quarter ended July 31, 2003~~ ~~related to this net operating loss since the Company is uncertain whether there~~ ~~will be sufficient taxable income in future periods to allow for utilization of this net operating loss.~~

~~Results~~• Sales and marketing expenses increased by $704,000, or 27.8%, and totaled $3,239,000 for the first nine months 2004. This increase was primarily due to a $265,000, or 21.1%, increase in resort marketing promotions and expenses, the recording of ~~Operations~~$256,000 in resort marketing barter expenses, a $95,000, or 21.4%, increase in conference sales expenses and a $89,000, or 10.7%, increase in real estate marketing expenses. • General and administrative expenses totaled $4,965,000 for ~~First~~the ~~Nine~~first ~~Months~~nine months 2004. Excluding the effect of a property tax refund of $304,000 received and recorded in the first quarter 2003, asgeneral ~~Compared~~and administrative expenses decreased by $303,000. This decrease was primarily due to a $409,000 decrease in medical claims associated with ~~First~~the ~~Nine Months~~Company’s ~~2002~~ self-funded medical plan. This decrease was partially offset by an $83,000 increase in expenses related to technology improvements. • Depreciation and amortization expense decreased by $17,000, and totaled $1,922,000 for the first nine months 2004.

~~Revenues~~Other income (expense)

~~Revenues~~• ~~for~~The Company reports changes in the value of its interest rate swap agreements in its operations. The Company recorded interest rate swap agreement income of $748,000 during the first nine months ~~2003~~2004. ~~totaled~~If ~~$38~~the swap agreements remain in effect until their expiration date in 2005,~~318,000,~~ athe 0cumulative total of all related income and expense entries will equal zero.9% ~~decrease from~~• Interest income decreased by $165,000 during the first nine months ~~2002~~2004 ~~revenues~~as compared to the first nine months 2003. ~~Resort~~This ~~revenues~~was ~~declined~~primarily ~~during~~as a result of the Company receiving interest of $104,000 during first ~~nine~~quarter ~~months~~2003 on excess property taxes paid from fiscal 1998 through fiscal 2001 and the payoff of a note receivable that the Company held in September 2003. • Interest expense increased by $1229,~~724,~~000, or 613.57%, during the first nine months 2004 as compared to the first nine months 2003. ~~Real~~This ~~estate~~increase ~~brokerage~~is ~~revenues~~ primarily the result of increased interest expense related to the additional debt from the judgment loan and the higher rate of interest on the trust preferred securities as described in Note 5 to the financial statements. • Merger related expenses totaling $970,000 were recorded during the nine months 2004. This total included consulting, investment banking and legal expenses related to the merger agreement with The Riverstone Group, LLC. • Litigation expenses totaling $8,450,000 were recorded during the first nine months 2003. byOn $1April 30,~~382~~ 2003,~~000~~ a jury verdict of approximately $7.8 million was rendered against a wholly owned subsidiary of the Company in Grey Point Associates, oret 11al.7% v. Sea Pines Company, Inc. The ~~resort~~ ~~revenue~~lawsuit ~~decline~~involved isalleged ~~attributable~~breach of contract by Sea Pines related to the ~~current~~development ~~downturn~~of inthe TidePointe retirement community. On October 6, 2003, the ~~United States~~Company ~~economy~~agreed ~~and~~pursuant to the terms of a ~~general~~settlement ~~decline~~agreement inand ~~domestic~~release ~~travel~~to pay $5. 9 million to settle the lawsuit.

1921

~~Revenue~~Income ~~changes are summarized as follows (in thousands of dollars):~~taxes

		Nine Months Ended
		July 31,
		2003		2002		Change			% Change
Resort
	Golf	$	8,455	$	9,119	$	(664	)		(7.3	)%
	Rental management		8,091		9,050		(959	)		(10.6	)
	Food and beverage		3,202		3,369		(167	)		(5.0	)
	Inn at Harbour Town		1,686		2,003		(317	)		(15.8	)
	Other recreation revenues		2,934		2,570		364			14.2
	Other		752		733		19			(2.6	)
		$	25,120	$	26,844	$	(1,724	)		(6.5	)
Real estate brokerage			13,198		11,816		1,382			11.7
Total revenues		$	38,318	$	38,660	$	(342	)		(0.9	)%

The Company has not recorded any income tax provision for the first nine months 2004 since the Company has sufficient net operating losses, which are currently fully reserved, that would offset projected taxable income.

~~Golf~~Financial ~~revenues decreased by $664~~Condition,~~000,~~ orLiquidity 7.3%, during the first nine months 2003 as compared with the first nine months 2002. The number of resort golf rounds played at Harbour Town Golf Links during the first nine months 2003 decreased by 1,877 rounds, or 9.9%, from the same period in 2002. This decrease in rounds played was slightly offset by a $4.32, or 3.0%, increase in average resort rate paid per round in the first nine months 2003, over the first nine months 2002. The number of resort golf rounds played at the Ocean and ~~Sea~~Capital ~~Marsh golf courses~~Resources ~~during the first nine months 2003 decreased by 8,366 rounds, or 15.8%, from the~~ ~~same period in 2002. This decrease was slightly offset by a $2.58, or 4.4%,~~ ~~increase in average resort rate paid per round in the first nine months 2003,~~ ~~over the first nine months 2002.~~

~~Rental~~ The ~~management~~Company’s ~~revenues~~financial ~~decreased~~results byfrom ~~$959,000,~~its orresort ~~10.6%,~~operations ~~during~~and ~~the~~real ~~first~~estate ~~nine~~brokerage ~~months~~activities ~~2003~~experience asfluctuations ~~compared~~by ~~with~~season. ~~the~~The ~~first~~period ~~nine~~from November ~~months~~through ~~2002.~~February ~~Total~~has ~~guest occupied~~historically ~~nights~~been ~~during~~ the ~~first~~Company’s ~~nine~~low ~~months~~resort revenue ~~2003~~and ~~were~~real ~~36,499~~estate assales ~~compared to 41~~season,~~340~~ ~~during~~and the ~~first~~period ~~nine~~from ~~months~~March ~~2002.~~through ~~The average daily rate was $212.79~~October inhas ~~the~~historically ~~first~~been ~~nine months 2003, an increase of $2.23, or 1.1%, from~~ the ~~same period~~Company’s inhigh ~~2002~~season.

~~Food~~ Cash and ~~beverage~~cash ~~revenues~~equivalents ~~decreased~~increased by $~~167~~1,599,000 since October 31, or2003 and totaled approximately $5~~.0%~~,641,000 ~~during~~at ~~the~~July 31, ~~first nine~~2004, ~~months~~of ~~2003~~which as$5,419,000 ~~compared~~was restricted. ~~with~~Restricted ~~the~~cash ~~first~~includes ~~nine~~cash ~~months~~held ~~2002.~~in ~~This~~escrow ~~decrease~~pending real estate ~~was~~closings, ~~primarily~~advance ~~due~~deposits tofor ahome ~~$357,000,~~and orvilla ~~22.9%~~rentals, ~~decline~~and inrental ~~revenue~~receipts ~~from catering~~to ~~operations~~be ~~and~~paid ato ~~$57,000,~~home orand 13villa owners.~~4%,~~ ~~decline~~Working incapital ~~revenue~~(current ~~from~~assets ~~golf~~less ~~food and~~current ~~beverage~~liabilities) ~~operations.~~decreased ~~These~~from ~~decreases~~October 31, ~~were~~2003 ~~offset~~ by a $~~237~~1,439,000, orresulting ~~48.8%, increase~~ in ~~revenue~~a working ~~from~~capital ~~the~~deficit ~~Sea~~of ~~Pines~~$3,335,000 ~~Beach~~at ~~Club~~July 31, 2004.

~~The~~ Under ~~Inn~~the atCompany’s ~~Harbour~~master ~~Town~~credit ~~revenues decreased by $317~~agreement,~~000,~~ orthe ~~15.8%,~~Company ~~during~~maintains ~~the~~four ~~first~~loan ~~nine~~facilities: ~~months~~a ~~2003~~term asloan, ~~compared~~a ~~with~~revolving ~~the~~line ~~first~~of ~~nine~~credit, ~~months~~a ~~2002.~~judgment ~~Paid occupancy~~loan ~~during~~and ~~the first nine months 2003 was 51.6% as compared to 62.0%~~a ~~during~~seasonal ~~the~~line ~~first~~of ~~nine months 2002~~credit. ~~The~~Available ~~average~~funds ~~daily~~under ~~rate~~these ~~was~~four ~~$186.04~~loan ~~in the~~facilities ~~first~~total ~~nine months 2003~~$40,733,000, asof ~~compared~~which to $~~188.42~~35,683,000 ~~for~~was ~~the~~outstanding ~~same~~at ~~period~~July 31, ~~in 2002~~2004.

~~Other~~ The ~~recreation~~term ~~services~~loan ~~revenue~~had ~~increased~~an byoutstanding principal amount of $~~364~~14,183,000 as of July 31, or2004 ~~14.2%~~and matures on November 1, ~~during~~2008. ~~the~~The revolving line of credit ~~first~~had ~~nine~~an ~~months~~outstanding ~~2003~~balance of $17,750,000 as ~~compared~~of ~~with~~July 31, ~~the~~2004 ~~first~~and ~~nine~~matures ~~months~~on November 1, ~~2002~~2007. AsThe judgment loan had an outstanding balance of $3,750,000 ~~mentioned~~on ~~above~~July 31, ~~this~~2004 ~~increase~~and matures on November 15, 2005. The maximum potential available borrowings under the seasonal line of credit total $4,500,000. It is used ~~primarily~~to meet cash requirements during the Company’s off-season winter months. The seasonal line of credit had no outstanding balance at July 31, 2004. The seasonal line of credit expires on November 1, 2007.

20 The Company has two interest rate swap agreements which effectively fix the interest rate on a $24 million notional principal amount outstanding under the loan facilities described above. An amount of $18 million has been fixed at 5.24% per annum plus a credit margin ranging from 1.40% to 1.85%, and an amount of $6 million has been fixed at 6.58% plus a credit margin ranging from 1.40% to 1.85%.

~~the~~ The ~~result~~Articles of ~~increased~~Incorporation ~~revenue~~of ~~from~~the ~~tennis~~Company ~~operations~~provide ~~related~~for todividends on the ~~Smith/Stearns~~preferred ~~Tennis~~stock ~~Academy~~of $0.722 ~~This~~per ~~new~~share ~~academy~~per ~~opened~~annum to be paid in ~~2002~~arrears. atThe terms of the ~~Sea~~judgment ~~Pines~~loan described in Note 5 to the Company’s consolidated ~~Racquet~~financial ~~Club~~statements required the Company to ~~provide~~cease ~~world~~the payment of dividends on its preferred stock and interest on its trust preferred securities. As of July 31, 2004, the Company has accrued $120,000 of dividends on the preferred stock. As of July 31, 2004, the Company had accrued twenty-~~class~~one ~~tennis~~months ~~instruction~~of interest totaling $474,000 on the trust preferred securities. The Company may resume these dividend and interest payments with approval from its bank.

~~Real estate brokerage revenues increased by $1,382,000, or 11.7%, during the~~22 first nine months 2003 as compared with the first nine months 2002. This increase was primarily the result of a 13.9% increase in sales volume in the first nine months 2003, as compared with the first nine months 2002. As mentioned above, this improvement is attributable to low mortgage interest rates and a favorable second home and real estate market.

~~Cost~~Item of3. ~~Revenues~~ Quantitative and Qualitative Disclosures About Market Risk

~~Cost~~ During ~~of revenues totaled $28,156,000 in~~ the ~~first~~quarter ~~nine~~ended ~~months 2003~~July 31, ~~an increase of $1~~2004,~~240,000,~~ orthere ~~4.6%,~~were asno ~~compared~~material tochanges to the ~~same~~quantitative ~~period~~and inqualitative ~~2002.~~disclosures Asabout ~~mentioned above,~~market ~~this~~risks ~~increase~~presented ~~was primarily~~ in the ~~result~~Company’s ofAnnual ~~increased~~Report ~~real~~on ~~estate brokerage~~Form ~~revenues~~10-K ~~which~~for ~~have~~the afiscal ~~slightly~~year ~~higher~~ended ~~cost of revenues percentage~~October 31, ~~than resort revenues~~2003.

~~Expenses~~ Item 4. Controls and Procedures

~~Sales~~ As of July 31, 2004, the Company’s Chief Executive Officer and ~~marketing~~Chief Financial ~~expenses~~Officer ~~increased~~conducted byan ~~$293,000,~~evaluation orof ~~13.1%,~~the ~~during~~effectiveness of the ~~first~~design ~~nine~~and ~~months~~operation ~~2003~~of asthe ~~compared~~Company’s ~~with~~disclosure ~~the~~controls ~~first~~and ~~nine~~procedures ~~months~~(as ~~2002~~defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). ~~This~~Based ~~increase~~on is that evaluation, the Company’s ~~result~~Chief Executive Officer and Chief Financial Officer concluded that as of ~~increased~~July 31, ~~real~~2004, ~~estate~~the ~~marketing~~Company’s disclosure controls and ~~resort~~procedures ~~marketing~~were effective. ~~promotions~~There has been no change in the Company’s internal control over financial reporting during the ~~first~~quarter ~~nine~~ended ~~months~~July 31, ~~2003~~2004 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

~~General~~PART ~~and administrative expenses increased by $48,000, or 1~~II.~~0%,~~ ~~during~~OTHER ~~the~~INFORMATION ~~first nine months 2003 as compared with the first nine months 2002. This~~ ~~increase is the result of a $139,000 increase in medical claims paid by the~~ Company’s self-funded medical plan, $93,000 increase in insurance expenses and a $46,000 increase in bank service fees. These increases were offset by a $115,000 decrease in bad debt expense, $56,000 decrease in property tax expense and a $62,000 decrease in employee benefit costs.

~~Litigation~~Item ~~expenses~~1. ~~totaling~~Legal ~~$8,450,000 were accrued during the first nine months as discussed in Note 4 of the financial statements.~~ Proceedings

~~Depreciation~~On ~~and~~January 23, ~~amortization~~2004, ~~costs~~Prudential-Bache/Fogelman ~~were~~Harbour ~~comparable~~Town ~~between~~Properties, L.P. (“Prudential-Bache/Fogelman”) filed a complaint in the ~~first~~United ~~nine~~States District ~~months~~Court, ~~2003~~District of South Carolina, Beaufort Division, naming the Company and Sea Pines Company, Inc. as ~~compared~~defendants, ~~with~~and seeking a declaratory judgment that Prudential-Bache/Fogelman is the ~~same~~owner ~~period~~of certain trademarks, an injunction prohibiting the Company and Sea Pines Company, Inc. from making any claims of ownership ~~2002~~of the trademarks and an unspecified amount of compensatory and punitive damages based on allegations of wrongful interference in Prudential-Bache/Fogelman’s prospective business relations. An Order of Dismissal was entered in this matter on July 22, 2004. Under the terms of the Order, if the parties have not consummated a settlement within 60 days, either party may petition the court to reopen the matter. An adverse judgment in this matter could have a material adverse effect on the Company’s financial condition, results of operations and cash flow.

~~Other~~The ~~income~~Company ~~(expense)~~is subject to claims and suits in the ordinary course of business. In management’s opinion, except as noted above, no currently pending claims and suits against the Company will have a material adverse effect on the Company.

~~Interest~~Item ~~income~~2. ~~increased~~Changes byin ~~$93~~Securities,~~000~~ ~~during~~Use ~~the first nine months 2003 as compared with the same period~~ of ~~2002.~~Proceeds ~~The~~and ~~Company~~Issuer ~~received~~Purchases ~~interest~~ of ~~$104,000~~ ~~during~~Equity ~~the first quarter 2003 on a refund of excess property taxes paid during 1998 through 2001.~~ Securities

~~Interest rate swap agreement income totaled $380,000 during the first nine~~ None ~~months 2003. This income is attributable to changes in the fair value of the~~ ~~interest rate swap agreements as discussed in Note 7 of the financial statements. The Company recorded income of $14,000 from the interest rate swap agreements during the first nine months 2002.~~

~~Interest~~Item ~~expense decreased by $148,000, or 8~~3.~~1%,~~ ~~during~~Defaults ~~the~~Upon ~~first~~Senior ~~nine months 2003 as compared~~ Securities

21 None

~~with~~Item ~~the~~4. ~~same~~Submission ~~period~~ of ~~2002.~~Matters ~~This~~To ~~decrease~~A isVote ~~attributable~~of toSecurity ~~lower interest rates during the first nine months 2003.~~ Holders

~~Income taxes~~ None

~~As a result of the jury verdict described in Note 4 of the financial~~23 statements, the Company anticipates a taxable loss for fiscal 2003. The Company has not recognized any benefit for the nine months ended July 31, 2003 related to this net operating loss since the Company is uncertain whether there will be sufficient taxable income in future periods to allow for utilization of this net operating loss.

~~Financial~~Item ~~Condition,~~5. ~~Liquidity~~Other ~~and Capital Resources~~ Information

~~The Company’s financial results from its resort operations and real estate~~ None ~~brokerage activities experience fluctuations by season. The period from~~ November through February has historically been the Company’s lower resort revenue and real estate sales season, and the period from March through October has historically been the Company’s higher season.

~~Cash~~Item ~~and cash equivalents increased by $1,140,000 since October 31, 2002 and totaled approximately $4,202,000 at July 31, 2003, of which $3,656,000 was restricted~~6. Restricted cash includes cash held in escrow pending real estate closings, advance deposits for home and villa rentals, and rental receipts to be paid to home and villa owners. Working capital (current assets – current liabilities) decreased since October 31, 2002 by $8,575,000, resulting in a working capital deficit of $9,904,000 at July 31, 2003. This decrease in working capital is primarily due to the litigation accrual of $8,129,000. Exhibits

In See ~~July~~attached 2003, the Company completed a modification to its master credit agreement with its principal corporate lender. The modification included revisions to certain loan covenants and representations and waived certain loan covenants for the year ending OctoberExhibit ~~31, 2003.~~Index

~~The modification also provided for a Judgment Loan Facility (the “Judgment~~24 Loan”) in the amount of up to $8,000,000. This loan facility may only be used to pay for expenses related to the litigation described in Note 4 of the financial statements. Interest on the facility is payable monthly at various London Interbank Offered Rates (LIBOR) plus 2.35% collateralized by substantially all assets of the Company. The facility matures on July 30, 2005. As of July 31, 2003, the Judgment Loan had no outstanding balance. On September 8, 2003, $8,000,000 was drawn on the loan facility and that amount was part of the $8,177,109 in funds that were deposited with the Beaufort County Court of Common Pleas.

~~Under the Company’s master credit agreement with its corporate lender, the~~SIGNATURES ~~Company maintains four loan facilities: a term loan, a revolving line of~~ ~~credit, the Judgment Loan and a seasonal line of credit. Available funds under~~ ~~these four loan facilities total $46,169,000, of which $33,169,000 was~~ ~~outstanding at July 31, 2003.~~

~~The~~Pursuant ~~term~~to ~~loan~~the ~~had~~requirements ~~an outstanding principal amount~~ of ~~$15,369,000~~the asSecurities ofExchange ~~July 31, 2003~~Act ~~and matures on November 1, 2008. The revolving line~~ of ~~credit had an outstanding balance of $17~~1934,~~800,000~~ ~~as of July 31, 2003 and matures on November~~the 1,registrant ~~2007.~~has ~~The~~duly ~~Judgment~~caused ~~Loan~~this ~~had~~report noto ~~outstanding~~be ~~balance~~signed on ~~July 31,~~its ~~2003~~behalf ~~and~~by the ~~matures~~undersigned onthereunto ~~July 30,~~duly ~~2005~~authorized. ~~The available balance under the seasonal~~


		SEA PINES ASSOCIATES, INC.
Date: September 13, 2004		/s/Michael E. Lawrence Michael E. Lawrence Chief Executive Officer
Date: September 13, 2004		/s/Steven P. Birdwell Steven P. Birdwell Chief Financial Officer

~~line of credit totals $4,500,000 and is used to meet cash requirements during~~25 ~~the Company’s off-season winter months. As of July 31, 2003, the seasonal line of credit had no outstanding balance. The seasonal line of credit expires on November 1, 2007.~~

~~The~~EXHIBIT ~~Company has two interest rate swap agreements which effectively fix the~~INDEX ~~interest rate on a $24 million notional principal amount outstanding under the~~ ~~loan facilities described above. An amount of $18 million has been fixed at~~ ~~5.24% per annum plus a credit margin ranging from 1.40% to 1.65%, and an amount~~ ~~of $6 million has been fixed at 6.58% plus a credit margin ranging from 1.40% to 1.65%.~~

~~Recent~~Pursuant ~~Developments~~to Item 601 of Regulation S-K

On April 30, 2003, a jury verdict of approximately $7.8 million was rendered against a wholly owned subsidiary of the Company in Grey Point Associates, et. al. vs. Sea Pines Company, Inc. (“Sea Pines”). The plaintiffs have also made a motion for prejudgment interest of approximately $1,584,000, which Sea Pines is contesting. The lawsuit involved alleged breach of contract by Sea Pines related to the development of the TidePointe retirement community.


Exhibit No.
3(a)		Articles of Incorporation of Registrant, as amended (Incorporated by reference to Exhibit 3(a) to Form 10-K filed January 29, 2001)

3(b)		Amended Bylaws of Registrant as revised September 30, 2002 (Incorporated by reference to Exhibit 3(b) to Form 10-K filed January 17, 2003)

4(a)		Second Amended and Restated Rights Agreement between Sea Pines Associates, Inc. and Wachovia Bank, N.A. dated as of August 5, 2003 (Incorporated by reference to Exhibit 1.1 of Form 8-A 12G/A filed August 5, 2003)

4(b)		Amended and Restated Trust Agreement dated February 1, 2000 by Sea Pines Associates, Inc. (Incorporated by reference to Exhibit 4(f) to Form 10-Q filed June 14, 2000)

4(c)		Junior Subordinated Indenture dated February 1, 2000 between Sea Pines Associates, Inc. and First Union National Bank (Incorporated by reference to Exhibit 4(d) to Form 10-Q filed June 14, 2000)

4(d)		Guarantee Agreement dated February 1, 2000 between Sea Pines Associates, Inc. and First Union National Bank (Incorporated by reference to Exhibit 4(e) to Form 10-Q filed June 14, 2000)

~~Sea Pines has filed post-trial motions, seeking, among other things, to~~26 overturn the verdict. A hearing on the motions was held on July 1, 2003. If Sea Pines is unsuccessful on these motions, it intends to appeal. The Company cannot predict the outcome of any of the post-trial motions or any appeal.

Litigation expense of $8,000,000 was recorded during the second quarter as a result of the jury verdict. The Company recorded additional litigation expense of $450,000 during the third quarter. The accrual includes approximately $7,789,000 for the jury verdict, $275,000 for accrued post-judgment interest on the jury verdict through July 31, 2003, and an estimate of legal fees incurred.


Exhibit No.
10(a)		Settlement Agreement and Release between Sea Pines Company, Inc. and Thomas M. DiVenere, Irwin (Pete) Pomranz and Grey Point Associates, Inc. dated October 6, 2003 (Incorporated by reference to Exhibit 1 to Form 8-K filed December 11, 2003)

10(b)		Waiver with respect to the Credit Agreement in 10(c) below dated December 17, 2003 (Incorporated by reference to Exhibit 10(b) to Form 10-K filed January 28, 2004)

10(c)		Amended and Restated Master Credit Agreement dated as of October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. (Incorporated by reference to Exhibit 10(c) to Form 10-K filed January 17, 2003)

10(d)		Second Amended and Restated Term Note between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated October 31, 2002 with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(d) to Form 10-K filed January 17, 2003)

10(e)		Second Amended and Restated Revolving Line of Credit Note between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated October 31, 2002 with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(e) to Form 10-K filed January 17, 2003)

10(f)		Second Amended and Restated Seasonal Line of Credit Note between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated October 31, 2002 with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(f) to Form 10-K filed January 17, 2003)

10(g)		Second Mortgage Modification and Restatement Agreement dated October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(g) to Form 10-K filed January 17, 2003)

~~On September 8, 2003, the Company deposited $8,177,109 with the Beaufort County~~27 Court of Common Pleas in order to stop the running of post-judgment interest and to act as an appeal bond should there be an appeal. These funds are being held in an interest-bearing escrow account, pending resolution of the legal proceedings.

In April 2003, the Heritage Classic Foundation (the “Foundation”), parent organization of the Heritage golf tournament, signed a contract with MCI to return as title sponsor of the Heritage golf tournament. The Company has a contract with the Foundation (which runs through 2006) that parallels the Foundation’s contract with the PGA Tour. The Company provides the tournament site and certain services necessary to the hosting of the tournament. In exchange, the Company receives a site fee and a course preparation fee to compensate for the loss of revenue resulting from the course closure and the additional expenses incurred in preparing the course for the tournament. Other financial benefits include increased pro shop apparel sales and increased lodging and catering revenue.


Exhibit No.
10(h)		Second Mortgage Modification and Restatement Agreement dated October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(h) to Form 10-K filed January 17, 2003)

10(i)		Second Mortgage Modification and Restatement Agreement dated October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(i) to Form 10-K filed January 17, 2003)

10(j)		Second Master Amendment to Collateral Assignments dated October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(j) to Form 10-K filed January 17, 2003)

10(k)		Swap Transaction confirmation between Sea Pines Company, Inc. and Wachovia Bank, N.A. dated September 30, 1998 (Incorporated by reference to Exhibit 10(s) to Form 10-K filed January 29, 1999)

10(l)		Swap Transaction confirmation between Sea Pines Company, Inc. and Wachovia Bank, N.A. dated May 4, 2000 (Incorporated by reference to Exhibit 10(l) to Form 10-K filed January 17, 2003)

10(m)		License and Use Agreement dated June 30, 1998 between Sea Pines Company, Inc. and CC-Hilton Head, Inc. (Incorporated by reference to Exhibit 10(t) to Form 10-K filed January 29, 1999)

10(n)		Sea Pines Associates, Inc. Director Stock Compensation Plan (Incorporated by reference to Exhibit 4.1 to Form S-8 filed June 18, 2001)*

10(o)		First Amendment to Sea Pines Associates, Inc. Director Stock Compensation Plan (Incorporated by reference to Exhibit 4.2 to Form S-8 filed June 18, 2001)*

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~28

During the nine months ended July 31, 2003, there were no material changes to the quantitative and qualitative disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2002.


Exhibit No.
10(p)		Sea Pines Associates, Inc. Deferred Issuance Stock Plan (Incorporated by reference to Exhibit 4.3 to Form S-8 filed June 18, 2001)*

10(q)		Waiver with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(q) to Form 10-Q filed July 16, 2003)

10(r)		First Modification and Waiver Agreement to the Amended and Restated Master Credit Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with Respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(r) to Form 10-Q filed September 12, 2003)

10(s)		First Modification to the Second Mortgage Modification and Re-Statement Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with respect to the agreement in 10(g) above (Incorporated by reference to Exhibit 10(s) to Form 10-Q filed September 12, 2003)

10(t)		First Modification to the Second Mortgage Modification and Re-Statement Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with respect to the agreement in 10(h) above (Incorporated by reference to Exhibit 10(t) to Form 10-Q filed September 12, 2003)

10(u)		First Modification to the Second Mortgage Modification and Re-Statement Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with respect to the agreement in 10(i) above (Incorporated by reference to Exhibit 10(u) to Form 10-Q filed September 12, 2003)

10(v)		Judgment Note between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with respect to the First Modification and Waiver Agreement in 10(r) above (Incorporated by reference to Exhibit 10(v) to Form 10-Q filed September 12, 2003)

10(w)		Change of Control Agreement for Michael E. Lawrence dated February 17, 2004* (Incorporated by reference to Exhibit 10(w) to Form 10-Q filed June 8, 2004)

2329

Item 4. Controls and Procedures


Exhibit No.
10(x)		Change of Control Agreement for Steven P. Birdwell dated March 9, 2004* (Incorporated by reference to Exhibit 10(w) to Form 10-Q filed June 8, 2004)

10(y)		Form of Change of Control Agreement (This form is used by the Company for various key employees.)* (Incorporated by reference to Exhibit 10(w) to Form 10-Q filed June 8, 2004)

10(z)		Agreement and Plan of Merger by and among The Riverstone Group, LLC, RG Subsidiary Corporation, and Sea Pines Associates, Inc. dated July 30, 2004 (Incorporated by reference to Form 8-K filed July 30, 2004)

10(aa)		Second Modification to the Amended and Restated Master Credit Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 22, 2004 with respect to the Credit Agreement in 10(c) above

10(bb)		Consent with respect to the Credit Agreement in 10(c) above

10(cc)		Resolution of the Sea Pines Associates, Inc. Board of Directors dated February 23, 2004 with respect to the Deferred Issuance Stock Plan in 10(p) above*

10(dd)		First Amendment to Second Amended and Restated Rights Agreement between Sea Pines Associates, Inc. and Wachovia Bank, N.A. dated as of July 27, 2004

31(a)		Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer

31(b)		Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer

32(a)		Section 1350 Certification of Chief Executive Officer

32(b)		Section 1350 Certification of Chief Financial Officer

99.1		Safe Harbor Disclosure

*		Management Contract or Compensatory Plan or Arrangement

~~As of July 31, 2003, the Company’s Chief Executive Officer and Chief Financial~~30 Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15-(e)). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of July 31, 2003 the Company’s disclosure controls and procedures were effective. There has been no change in the Company’s internal control over financial reporting during the quarter ended July 31, 2003 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On April 30, 2003, a jury verdict of approximately $7.8 million was rendered against a wholly owned subsidiary of the Company in Thomas M. DiVenere, Irwin (“Pete”) Pomranz, and Grey Point Associates, Inc., a South Carolina Corporation vs. Sea Pines Company, Inc., Sea Pines/TidePointe, Inc., and TidePointe Partners (“Sea Pines”). The case was tried in the Beaufort County, South Carolina, Court of Common Pleas. The case was instituted on November 27, 1995. The plaintiffs have also made a motion for prejudgment interest of approximately $1,584,000, which Sea Pines intends to contest. The lawsuit involved alleged breach of contract by Sea Pines related to the development of the TidePointe retirement community.

Sea Pines has filed post-trial motions, seeking, among other things, to overturn the verdict. A hearing on the motions was held July 1, 2003. If Sea Pines is unsuccessful on these motions, it intends to appeal. The Company cannot predict the outcome of any of the post-trial motions or any appeal.

The Company is subject to claims and suits in the ordinary course of business. In management’s opinion, except as noted above, no currently pending claims and suits against the Company will have a material adverse effect on the Company.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters To A Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K.

(a)		Exhibits:See attached Exhibit Index
(b)		Reports on Form 8-K were filed during the quarter ending July 31, 2003. The items reported, any financial statements filed, and the dates of any such reports are listed below.

(i) Sea Pines Associates, Inc., current report on Form 8-K filed on May 2, 2003, reporting as an exhibit under Item 5 the Company’s disclosure of a jury verdict rendered against a wholly owned subsidiary of Sea Pines Associates, Inc. in Grey Point Associates, et. al. vs. Sea Pines Company, Inc.

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.

				SEA PINES ASSOCIATES, INC.
Date: September 12, 2003				/s/Michael E. Lawrence
				Michael E. Lawrence
				Chief Executive Officer
Date: September 12, 2003				/s/Steven P. Birdwell
				Steven P. Birdwell
				Chief Financial Officer

EXHIBIT INDEX

Pursuant to Item 601 of Regulation S-K

Exhibit No.
3(a)		Articles of Incorporation of Registrant, as Amended (Incorporated by reference to Exhibit 3(a) to Form 10-K filed January 29, 2001)
3(b)		Amended Bylaws of Registrant as revised September 30, 2002 (Incorporated by reference to Exhibit 3(b) to Form 10-K filed January 17, 2003)
4(a)		Second Amended and Restated Rights Agreement between Sea Pines Associates, Inc. and Wachovia Bank, N.A. dated as of August 5, 2003 (Incorporated by reference to Form 8-A/A filed August 5, 2003)
4(b)		Amended and Restated Trust Agreement dated February 1, 2000 by Sea Pines Associates, Inc. (Incorporated by reference to Exhibit 4(f) to Form 10-Q filed June 14, 2000)
4(c)		Junior Subordinated Indenture dated February 1, 2000 between Sea Pines Associates, Inc. and First Union National Bank (Incorporated by reference to Exhibit 4(d) to Form 10-Q filed June 14, 2000)
4(d)		Guarantee Agreement dated February 1, 2000 between Sea Pines Associates, Inc. and First Union National Bank (Incorporated by reference to Exhibit 4(e) to Form 10-Q filed June 14, 2000)

Exhibit No.
10(a)		Adjustable Rate Promissory Note between Sea Pines Company, Inc. and Carolina Center Building Corp. dated October 31, 1996 (Incorporated by reference to Exhibit 10(t) to Form 10-K filed January 29, 1997)
10(b)		Mortgage Assignment and Security Agreement between Sea Pines Company, Inc. and Carolina Center Building Corp. dated October 31, 1996 (Incorporated by reference to Exhibit 10(u) to Form 10-K filed January 29, 1997)
10(c)		Amended and Restated Master Credit Agreement dated as of October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. (Incorporated by reference to Exhibit 10(c) to Form 10-K filed January 17, 2003)
10(d)		Second Amended and Restated Term Note between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated October 31, 2002 with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(d) to Form 10-K filed January 17, 2003)
10(e)		Second Amended and Restated Revolving Line of Credit Note between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated October 31, 2002 with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(e) to Form 10-K filed January 17, 2003)
10(f)		Second Amended and Restated Seasonal Line of Credit Note between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated October 31, 2002 with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(f) to Form 10-K filed January 17, 2003)
10(g)		Second Mortgage Modification and Restatement Agreement dated October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(g) to Form 10-K filed January 17, 2003)

Exhibit No.
10(h)		Second Mortgage Modification and Restatement Agreement dated October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(h) to Form 10-K filed January 17, 2003)
10(i)		Second Mortgage Modification and Restatement Agreement dated October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(i) to Form 10-K filed January 17, 2003)
10(j)		Second Master Amendment to Collateral Assignments dated October 31, 2002 between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(j) to Form 10-K filed January 17, 2003)
10(k)		Swap Transaction confirmation between Sea Pines Company, Inc. and Wachovia Bank, N.A. dated September 30, 1998 (Incorporated by reference to Exhibit 10(s) to Form 10-K filed January 29, 1999)
10(l)		Swap Transaction confirmation between Sea Pines Company, Inc. and Wachovia Bank, N.A. dated May 4, 2000 (Incorporated by reference to Exhibit 10(l) to Form 10-K filed January 17, 2003)
10(m)		License and Use Agreement dated June 30, 1998 between Sea Pines Company, Inc. and CC-Hilton Head, Inc. (Incorporated by reference to Exhibit 10(t) to Form 10-K filed January 29, 1999)
10(n)		Sea Pines Associates, Inc. Director Stock Compensation Plan (Incorporated by reference to Exhibit 4.1 to Form S-8 filed June 18, 2001)*
10(o)		First Amendment to Sea Pines Associates, Inc. Director Stock Compensation Plan (Incorporated by reference to Exhibit 4.2 to Form S-8 filed June 18, 2001)*

Exhibit No.
10(p)		Sea Pines Associates, Inc. Deferred Issuance Stock Plan (Incorporated by reference to Exhibit 4.3 to Form S-8 filed June 18, 2001)*
10(q)		Waiver with respect to the Credit Agreement in 10(c) above (Incorporated by reference to Exhibit 10(q) to Form 10-Q filed July 16, 2003)
10(r)		First Modification and Waiver Agreement to the Amended and Restated Master Credit Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with Respect to the Credit Agreement in 10(c) above
10(s)		First Modification to the Second Mortgage Modification and Re-Statement Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with respect to the agreement in 10(g) above
10(t)		First Modification to the Second Mortgage Modification and Re-Statement Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with respect to the agreement in 10(h) above
10(u)		First Modification to the Second Mortgage Modification and Re-Statement Agreement between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with respect to the agreement in 10(i) above
10(v)		Judgment Note between Sea Pines Associates, Inc. and Sea Pines Company, Inc. and Wachovia Bank, N.A. dated July 31, 2003 with respect to the First Modification and Waiver Agreement in 10(r) above
31(a)		Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer
31(b)		Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32(a)		Section 1350 Certification of Chief Executive Officer
32(b)		Section 1350 Certification of Chief Financial Officer
99.1		Safe Harbor Disclosure
*		Management Contract or Compensatory Plan or Arrangement

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