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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2002

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D0
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from __________ to __________

Commission file number: 0-17517

SEA PINES ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)


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

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

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock (No Par)
(Title of Class)

Series A Cumulative Preferred Stock ($0.722 Dividend
Rate/$7.60 Liquidation Preference and Redemption Price)
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]     No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.) Yes [  ]    No [X]

There is presently no established public trading market for shares of the
registrants common stock, no par value, and there has been very limited
trading in such shares since their original issuance in 1987. Accordingly,
trading activity in the common stock of the registrant does not currently
represent a reliable indicator of the aggregate market value of the common
stock of the registrant held by non-affiliates of the registrant and the
registrant is unable to estimate such value.

The number of shares outstanding of the registrants common stock as of
December 31, 2002 was 3,573,400.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants Proxy Statement in connection with its 2003
Annual Meeting of Shareholders are incorporated by reference into Part III.





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PART I

THIS REPORT ON FORM 10-K 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-K, 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. Business.

(a)  General Development of Business.Sea Pines Associates, Inc. was
incorporated under South Carolina law on May 4, 1987. As used in this report
on Form 10-K, except where the context otherwise indicates, the Company means
Sea Pines Associates, Inc. and its subsidiaries. The Company was principally
organized to acquire, own and operate certain resort assets located in Sea
Pines, a 5,300-acre master planned resort community on Hilton Head Island,
South Carolina.

Subsidiaries of the Company include Sea Pines Company, Inc. (SPC), Sea
Pines Real Estate Company, Inc. (SPREC), Sea Pines Associates Trust I, and
Fifth Golf Course Club, Inc., all of which are wholly-owned.

SPC is a full-service resort, which owns and operates The Inn at Harbour
Town, three golf courses, tennis and various other recreational facilities,
home and villa rental management operations, conference facilities, and food
and beverage services. SPREC provides real estate brokerage services for
buyers and sellers of real estate on Hilton Head Island and its neighboring
communities. Fifth Golf Course Club, Inc. owns certain acreage which could be
used for outdoor recreational purposes. Sea Pines Associates Trust I holds
certain company debentures as security for notes it has issued.

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(b)  Financial Information Relating to Industry Segments.See Note 14 to
the consolidated financial statements contained elsewhere herein for business
segment information.

(c)  Narrative Description of Business.The Companys operations were
conducted primarily in two reportable business segments for the year ended
October 31, 2002. These segments are organized by the type of operations: (1)
resort operations, including home and villa rental management operations, a
60-room inn, golf course operations, conference facilities, food and beverage
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.

1. Resort Operations.Resort operations consist primarily of the
operation of three resort golf courses, a racquet club facility, home and villa
rental management operations, a 60-room inn, conference facilities, retail
outlets, food service operations, and other recreational facilities. For
fiscal year 2002, resort operations accounted for approximately $34,892,000
(68%) of the Companys total revenues, with golf and tennis activity revenues
representing $15,284,000 (30%) and home and villa rental management operations
revenues representing $11,606,000 (23%). For fiscal year 2001, resort
operations accounted for approximately $33,734,000 (67%) of the Companys total
revenues, with golf and tennis activities responsible for revenues of
approximately $14,540,000 (29%) and home and villa rental management operations
responsible for revenues of approximately $11,822,000 (23%). For fiscal year
2000, resort operations accounted for approximately $29,670,000 (61%) of the
Companys total revenues, with golf and tennis activities responsible for
revenues of approximately $12,710,000 (26%) and home and villa rental
management operations responsible for revenues of approximately $12,436,000
(25%).

During each of the fiscal years 2002, 2001 and 2000, approximately 70% of
golf and tennis revenues and 100% of inn revenues and home and villa rentals
were derived from vacation and conference use at Sea Pines. The remaining golf
and tennis revenues, approximately 30%, were generated from Hilton Head Island
residents. As a result, the Company believes its future success is dependent
upon Hilton Head (in general) and Sea Pines (in particular) continuing to be
considered as prime destination resort areas, with appropriate lodging and
conference facilities.

During fiscal years 2002, 2001 and 2000, residents and vacationers
utilizing accommodations at Sea Pines accounted for approximately 85% of the
use of the Companys golf and tennis facilities, with the remainder
attributable to use by persons residing outside Sea Pines. Fees charged to the
general public for use of the Companys facilities are typically higher than
the fees charged to persons residing within Sea Pines. The Company is also a
party to certain use and access agreements with several developments and hotels
located both inside and outside of Sea Pines. These agreements generally
provide the guests of those particular developments and hotels with access to
the Companys facilities at rates slightly lower than those available to the
general public. In addition, the Company will occasionally offer special
discounts and package rates as part of its ongoing promotional activities.

Vacation use is seasonal with the highest period being from March through
November and the lowest period from December through February. Substantial
fixed costs continue during the non-peak period, leading to major seasonal
fluctuations in operating income.

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The Company believes that its resort operations are relatively stable.
Nevertheless, economic conditions and other factors do adversely affect tourism
on Hilton Head, and may have a negative impact on the resort operations of the
Company. Because of its location on the Atlantic coast, Hilton Head is
susceptible to adverse weather conditions and resulting damage from hurricanes,
as well as the potential for damage from a major oil or hazardous waste spill.
Although Hilton Heads location away from major oil drilling operations and
industrial sites greatly reduces the risk of the latter occurrence, there can
be no assurance that such damage will never occur. The Company maintains
property and casualty insurance in amounts that it believes to be adequate
including coverage for business interruption. Furthermore, access to the
Companys facilities is dependent upon adequate means of transportation at a
reasonable cost. In the future, fuel shortages, increases in fuel costs and
other events which might inhibit or restrict airplane or automobile travel
could have a negative impact on the Companys operations, depending on the
severity and duration of the interruption or price increase.

The Company is generally subject to various local and regional land use
and environmental regulations, ordinances and restrictive covenants. The
Company believes that it is currently in compliance with all such applicable
regulations and covenants and does not expect that compliance in the future
will have any material effect on the operations or the profitability of the
Company.

Resort operations are subject to significant competition from various
competing facilities on Hilton Head, as well as other destination resorts in
South Carolina, Georgia and Florida. Specifically, the Company believes its
golf courses are directly competitive with approximately 20 golf courses
located on Hilton Head outside of Sea Pines. However, in as much as golf
course play is in large part dictated by the number of guests utilizing
accommodations within Sea Pines, the overall success of the Companys
operations will continue to be dependent on Sea Pines maintaining its
reputation as a premier golf and tennis resort. The Company believes that its
rates are competitive compared to other facilities of comparable quality and
reputation in the southeastern region and expects that its facilities will
continue to compete favorably due to location, quality, design and the
established reputation of Sea Pines.

One of the Companys golf courses hosts the annual Heritage Golf
Tournament, a nationally televised professional golf tournament. Although the
facility usage fee for this tournament does not constitute a major source of
income, the event has a significant favorable impact on the Companys lodging,
food and beverage and retail business. Moreover, the tournaments extensive
media coverage provides substantial marketing benefits resulting in an enhanced
national reputation of Sea Pines and the Companys facilities. Loss of the
tournament would negatively affect the Company in all these respects.

The Companys golf and tennis operations consist primarily of marketing
and maintaining the Companys facilities. The Company receives court fees,
greens fees, cart rental fees, and income from merchandise sales. The
Companys tennis facility and the three resort golf courses are open to the
general public. Maintenance and overhead expenses associated with the
Companys golf and tennis operations remain generally stable regardless of the
volume of facility usage. The Companys current and future financial results
are substantially dependent upon the revenues generated from the

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usage of its facilities, which revenues are a function of both the volume
of usage and the fee levels the Company is in a position to charge in its
market area.

The Companys resort operations employed approximately 329 people as of
December 31, 2002.

2. Real Estate Brokerage.SPREC is engaged primarily in the brokerage of
residential real estate on Hilton Head Island and its neighboring communities.
The Company competes with other real estate brokerage firms in the Hilton Head
Island area.

SPREC maintains 15 offices, five located within Sea Pines, six located
outside of Sea Pines on Hilton Head Island and four located off Hilton Head
Island in the surrounding Beaufort County area.

For fiscal year 2002, real estate brokerage operations accounted for
approximately $16,250,000 (32%) of the Companys total revenues. For fiscal
year 2001, real estate brokerage operations accounted for approximately
$16,610,000 (33%) of the Companys total revenues. For fiscal year 2000, real
estate brokerage operations accounted for approximately $19,169,000 (39%) of
the Companys total revenues.

While brokerage activities are not tied directly to vacation and
conference activities, any general decrease in visitors to Hilton Head Island
can result in slower residential real estate sales. Furthermore, the sluggish
national economy and decline in air travel are anticipated to suppress real
estate brokerage revenues to some degree for an indeterminate period.

SPREC employed 34 people, and had approximately 116 non-employee sales
agents, as of December 31, 2002.

(d)  Financial Information About Foreign and Domestic Operations and Export
Sales.All of the Companys operations are confined to Beaufort and Jasper
Counties in South Carolina. See Item 1(a).

Item 2. Properties.

(a)  Golf Facilities.SPC owns three 18-hole resort golf courses known as
the Harbour Town Golf Links, the Ocean Course, and the Sea Marsh Course, all of
which are located within Sea Pines. Each of the Companys golf courses is
substantially utilized during the peak occupancy period on Hilton Head Island,
which is March through November.

The Harbour Town Golf Links property consists of approximately 136 acres,
including a driving range. Harbour Town is the site of the Heritage Golf
Tournament, an annual tournament on the PGA Tour. Adjacent to the Harbour Town
Golf Links is the Harbour Town Clubhouse, which contains a pro shop, a
restaurant, and other small meeting and dining facilities.

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The Sea Marsh Golf Course contains approximately 92 acres, and the Ocean
Course contains approximately 97 acres. There is a driving range, that
contains approximately 11.6 acres, located adjacent to, and shared by, the
Ocean and Sea Marsh golf courses.

(b)  Tennis Facility.SPC owns and operates a tennis complex in the
Harbour Town area of Sea Pines known as the Sea Pines Racquet Club.

(c)  The Inn at Harbour Town.In November 2000, the Company completed
construction of a small inn in the Harbour Town area. The Inn at Harbour Town
is a 47,000 square-foot facility featuring 60 inn rooms and is adjacent to and
provides views of the Harbour Town Golf Links.

(d)  Harbour Town Conference Center.The Company operates the Harbour Town
Conference Center located adjacent to the Harbour Town Golf Links Clubhouse.
The Harbour Town Conference Center is a 16,000 square-foot facility and is
available for both group conferences and social functions.

(e)  Equestrian Facilities.SPC owns a tract of land known as Lawton
Stables, which contains approximately 21.8 acres. The stables are leased to a
stable operator who provides boarding, lessons, and trail rides.

(f)  Plantation Club.SPC owns a tract of land with improvements thereon
known as the Plantation Club site containing approximately 9.4 acres. It
includes the golf pro shop associated with the Ocean and Sea Marsh golf courses
as well as conference facilities, food and beverage facilities, a health and
fitness center, a swimming pool, and a bike rental store.

(g)  Other Recreational Facilities.In the vicinity of the Harbour Town
Golf Links, SPC owns and operates recreational areas containing a playground, a
swimming pool, and a snack bar.

SPC also owns and operates a Beach Club in the vicinity of the Plantation
Club, containing a retail shop, an outdoor food and beverage facility, and a
real estate office.

(h)  Undeveloped Tracts/Development Rights.SPC owns a number of
undeveloped tracts of land within Sea Pines briefly described as follows:



| | 1. |  | Sea Pines Academy Tract  approximately 3 acres;          
| | -- |  | ----------------------------------------------------------
|
| | 2. |  | Sea Pines Center Residual  approximately 1.4
acres;      
|
| | 3. |  | Harbour Town Main Parking Tract  approximately
3.2 acres;
|
| | 4. |  | Artists Area Tract  approximately 1.5 acres;             
|
| | 5. |  | Cordillo Parkway Tract  approximately 6 acres;
and       

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| | 6. |  | Outdoor Recreation Tract  approximately 9 acres.
| | -- |  | -------------------------------------------------

(i)  Forest Preserve.SPC owns a 495-acre tract of land known as the Sea
Pines Forest Preserve. Various recreational activities are permitted to be
conducted on 181 of these acres. A golf course is one possible use, but
construction of a golf course would require the approval of 75% of Sea Pines
property owners voting on such issue.

The portion of the Forest Preserve not reserved for outdoor recreation is
designated as a wild life preserve. In August 1993, the Company made a
commitment to donate approximately 404 acres of the wildlife preserve to a
not-for-profit organization on Hilton Head Island, South Carolina. As of
October 31, 2002, approximately 90 of the 404 acres had been donated and title
transferred. The remaining 314 acres are leased to the same not-for-profit
organization for a minimal amount.

(j)  Welcome Center.SPC owns a 6-acre tract of land, which is the site of
the Sea Pines Welcome Center. This is a 23,000-square foot facility, which
contains the Companys executive and administrative offices, the lodging front
office facilities, and the main office facility for SPREC.

(k)  Liberty Oak Cafe.SPC owns a 1.6-acre tract of land and improvements
known as the Liberty Oak Cafe. This is an outdoor food and beverage facility
used for catered functions.

(l)  Leases.SPC currently leases approximately 31,000 square feet of
space used for the golf maintenance facilities, and SPREC leases approximately
19,749 square feet of office space in eight locations throughout the Hilton
Head Island area.

(m)  Other Real Estate.SPC owns a small office building in the Harbour
Town area known as the Saddlebag Building, which is leased to a third party,
and three small commercial buildings in Harbour Town, one of which currently
serves as a sales office for SPREC and one serves as the Harbour Town Bakery.

Substantially all of the Companys properties are subject to liens as
described in Item 7, Managements Discussion and Analysis of Financial
Conditions and Results of Operations.

Item 3. Legal Proceedings.

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

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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PART II

Item 5. Market for Registrants Common Equity and Related Stockholder Matters.

(a)  Market Information.There is no established public trading market for
the Companys common stock. The Companys capital stock was originally issued
in 1987 in units consisting of 750 shares of common stock and 500 shares of
Series A preferred stock. From 1987 through February 2000, virtually all
transactions in the Companys common stock and preferred stock were completed
in units as originally issued. Transactions in such units traded sporadically
on a bid and ask basis through the over the counter market at Robinson-Humphrey
Company in Atlanta, Georgia. In February 2000, the Company completed an
exchange offer in which holders of preferred stock could exchange preferred
stock for common stock or trust preferred securities. Since the exchange offer
closed in February 2000, there has been very limited trading of the Companys
common stock. Through its transfer agent, the Company is aware of only 20
transfers of shares of common stock occurring during the fiscal year ended
October 31, 2002. The Company has no official data as to the prices at which
any of these transfers took place. Consequently, the Company is unable to
provide high and low closing sales prices for shares of its common stock for
the fiscal years ended October 31, 2002 and October 31, 2001.

In May 2000, the Company established a bulletin board on its web site that
allows persons the ability to post their interest in buying or selling the
Companys securities. This bulletin board allows offers to be posted in all
three of the Companys outstanding securities: common stock, Series A
preferred stock, and trust preferred securities. The bulletin board can be
accessed on the Companys web site on the World Wide Web at www.seapines.com.
Offering prices on the bulletin board to purchase the Companys common stock
during the fiscal year ended October 31, 2002 ranged from $2.50 to $6.00 per
share. Recent posted offers have ranged from $2.50 to $4.50 per share.

Neither the Company nor any of its affiliates will (a) receive any
compensation for creating or maintaining the bulletin board or for its use, (b)
be involved in any purchase or sale negotiations arising from the bulletin
board, (c) give advice regarding the merits or shortcomings of any particular
trade, (d) use the bulletin board, directly or indirectly, to offer to buy or
sell securities except in compliance with all securities laws, or (e) receive,
transfer, or hold any funds or securities as an incident of operating the
bulletin board.

(b)  Holders.As of December 31, 2002, there were approximately 550
holders of record of shares of common stock.

(c)  Dividends.The Articles of Incorporation of the Company provide for
dividends on the preferred stock of $0.722 per share per annum to be paid in
arrears. As of October 31, 2002, the Company has paid all accrued dividends on
the preferred stock applicable to all years ended on or before October 31,
2001.

At its December 16, 2002, Board of Directors meeting, the Company declared
a cash dividend of $0.722 per share for fiscal year 2002 payable to holders of
Series A Cumulative

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Preferred Stock. This dividend is payable in equal quarterly installments
of approximately $0.18 per share on January 15, 2003, April 15, 2003, July 15,
2003, and October 15, 2003, to shareholders of record on January 1, 2003, April
1, 2003, July 1, 2003 and October 1, 2003, respectively.

The Company has not paid any dividends on its common stock and has no
present intention of paying such dividends in the foreseeable future.

(d)Securities Authorized for Issuance Under Equity Compensation Plans

|                                                           |  |                   |        |                   |  |                     |      |  |  |  |         |    
|---------------------------------------------------------- |  | ----------------- | ------ | ----------------- |  | ------------------- | ---- |  |  |  | ------- | ---
|                                                           |  | Number of         |        |                   |  |                     |      |  |  | 
|                                                           |  | securities to be  |        |                   |  |                     |      |  |  | 
|                                                           |  | issued upon       |        | Weighted average  |  |                     |      | 
|                                                           |  | exercise of       |        | exercise price of |  | Number of          
|                                                           |  | outstanding       |        | outstanding       |  | securities         
|                                                           |  | options, warrants |        | options, warrants |  | remaining available
|Plan category                                              |  | and rights        |        | and rights        |  | for future issuance
|                                                           |  |                   |        |                   |  |                    
|                                                           |  | (a)               |        | (b)               |  | (c)                
|                                                           |  |                   |        |                   |  |                    
|Equity compensation
plans approved by
security holders     |  |                   | 55,400 |                   |  | $                   | 4.86 |  |  |  | 124,600 |    
|                                                           |  |                   |        |                   |  |                     |      |  |  |  |         |    
|Equity compensation
plans not approved
by security holders |  |                   |       |                   |  |                     |     |  |  |  | 22,000  | (1)
|                                                           |  |                   |        |                   |  |                     |      |  |  |  |         |    
|Total                                                      |  |                   | 55,400 |                   |  | $                   | 4.86 |  |  |  | 146,600 |    
|                                                           |  |                   |        |                   |  |                     |      |  |  |  |         |    



---

|(1) |  | These shares are available for future issuance under the Companys Director
Stock Compensation Plan. Information with respect to that plan can be found in
Note 11 to the Companys consolidated financial statements included herein.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Item 6. Selected Financial Data.

The following selected consolidated financial data should be read in
conjunction with Managements Discussion and Analysis of Financial Conditions
and Results of Operations and with the consolidated financial statements and
notes thereto, which are included elsewhere in this annual report.

|                                               |  |                                          |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|---------------------------------------------- |  | ---------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                               |  | Years Ended October 31,                 
|                                               |  |                                         
|                                               |  | 2002                                     |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                               |  |                                          |        |      |  |      |        |      |  |     
|                                               |  | (In thousands, except per share amounts)
|Consolidated Statements of Operations Data:    |  |                                          |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Revenues                                       |  | $                                        | 51,142 |      |  | $    | 50,344 |      |  | $    | 48,839 |   |  | $ | 46,414 |   |  | $ | 38,506 |  
|Cost of operations                             |  | $                                        | 48,240 |      |  | $    | 49,054 |      |  | $    | 47,751 |   |  | $ | 42,563 |   |  | $ | 34,345 |  
|Income from operations                         |  | $                                        | 2,902  |      |  | $    | 1,290  |      |  | $    | 1,088  |   |  | $ | 3,851  |   |  | $ | 4,161  |  
|Interest expense                               |  | $                                        | (2,392 | )    |  | $    | (2,771 | )    |  | $    | (1,426 | ) |  | $ | (1,099 | ) |  | $ | (1,345 | )
|Other (expense) income                         |  | $                                        | (270   | )    |  | $    | (1,623 | )    |  | $    | (149   | ) |  | $ | 523    |   |  | $ | 333    |  
|Net income (loss)                              |  | $                                        | 197    |      |  | $    | (2,674 | )    |  | $    | (389   | ) |  | $ | 2,063  |   |  | $ | 2,050  |  
|Net income (loss) attributable to
common stock |  | $                                        | 37     |      |  | $    | (2,834 | )    |  | $    | (730   | ) |  | $ | 1,176  |   |  | $ | 1,163  |  
|Per
share of common stock                     
|Net income (loss)                              |  | $                                        | 0.01   |      |  | $    | (0.80  | )    |  | $    | (0.23  | ) |  | $ | 0.64   |   |  | $ | 0.63   |  
|Weighted average shares outstanding            |  |                                          | 3,568  |      |  |      | 3,554  |      |  |      | 3,174  |   |  |   | 1,843  |   |  |   | 1,843  |  
|Consolidated Balance Sheet Data:               |  |                                          |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Current assets                                 |  | $                                        | 5,894  |      |  | $    | 4,259  |      |  | $    | 5,017  |   |  | $ | 5,926  |   |  | $ | 4,852  |  
|Real estate assets, net                        |  | $                                        | 47,416 |      |  | $    | 49,516 |      |  | $    | 50,310 |   |  | $ | 34,963 |   |  | $ | 30,838 |  
|Total assets                                   |  | $                                        | 54,511 |      |  | $    | 55,172 |      |  | $    | 56,994 |   |  | $ | 42,690 |   |  | $ | 37,925 |  
|Current liabilities                            |  | $                                        | 7,223  |      |  | $    | 7,495  |      |  | $    | 8,802  |   |  | $ | 6,392  |   |  | $ | 5,518  |  
|Long-term obligations, less current portion    |  | $                                        | 37,948 |      |  | $    | 38,498 |      |  | $    | 36,236 |   |  | $ | 20,404 |   |  | $ | 17,689 |  
|Shareholders equity                           |  | $                                        | 9,340  |      |  | $    | 9,179  |      |  | $    | 11,956 |   |  | $ | 15,894 |   |  | $ | 14,718 |  

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Item 7. Managements Discussion and Analysis of Financial Conditions and Results of Operation.

Results of Operations

The Companys operations are conducted primarily through two wholly owned
subsidiaries. Sea Pines Company, Inc. operates all of the resort assets,
including a 60-room inn, conference facilities, three resort golf courses, a
tennis center, home and villa rental management operations, retail sales
outlets, food service operations, and other resort recreational facilities.
Sea Pines Real Estate Company, Inc. is an independent real estate brokerage
firm with 15 offices serving Hilton Head Island and its neighboring
communities.

Critical Accounting Policies

In 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.

As discussed in Note 1 to the Companys consolidated financial statements,
revenue from resort operations is recognized as goods are sold and services are
provided and revenue from real estate brokerage is recognized when the title
passes to the buyer. As a result, the Companys revenue recognition process
does not involve significant judgments or estimates.

As discussed in Note 1 to the Companys consolidated financial statements, an
impairment loss is recognized whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. In order to evaluate
for potential impairment the Company compares estimates of future cash flows
expected from the use of the asset to the carrying amount of the asset.
Management believes that the Companys estimates of future cash flows are based
on reasonable and supportable assumptions and represent the Companys best
estimates of the cash flows expected to result from the use of the
corresponding assets. As disclosed in the consolidated financial statements,
the Company has not incurred any impairment losses for the years ended October
31, 2002, 2001 or 2000.

2002 Compared to 2001

Revenues

The Company reported revenues of $51,142,000 for fiscal year 2002, a
$798,000, or 1.6%, increase over fiscal year 2001.

11



---



##### 



The primary factors contributing to the $798,000 increase in revenues were
as follows:



| |  |  | Golf revenue in fiscal year 2002 increased by $377,000, or 3.2%, as
compared to 2001. This increase was due to the Harbour Town Golf Links
being open for all twelve months of 2002 as compared to only being open
for ten months of 2001. The golf course was closed for eight months
beginning with the third quarter of 2000 through part of the first
quarter of 2001 to complete a major restoration project.                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Food and beverage operations generated revenues of $4,444,000 in
fiscal year 2002. This represents an increase of $355,000, or 8.7%,
over 2001. This increase was due to increased revenue in the catering
operations, Harbour Town Bakery and the Sea Pines Beach Club.                                                                                                                                                                      
|
| |  |  | The Inn at Harbour Town generated revenues of $2,667,000 in fiscal
year 2002. This represents an increase of $294,000, or 12.4%, over
2001. Total occupied room nights were 13,516 as compared to 12,599
during 2001. The average daily rate was $187.97 during 2002, an
increase of $7.87, or 4.4%, from the same period in 2001.                                                                                                            
|
| |  |  | Revenues from the Companys rental management operation in 2002
decreased by $217,000, or 1.8%, compared with 2001. This decrease is
primarily the result of current economic conditions and the decline in
air travel. Guest occupied unit nights decreased 4.4% in fiscal year
2002, totaling 53,510 for the year. The average daily rate of $208.67
in fiscal year 2002 was a 3.1% increase over the average daily rate in
2001 of $202.43.
|
| |  |  | Gross commission revenue in fiscal year 2002 from the real estate
brokerage operation decreased by $360,000, or 2.2%, as compared to
2001. This decrease was primarily the result of the economic downturn
during the first six months of fiscal 2002, which adversely affected
the second-home sales market.                                                                                                                                 

Cost of revenues

Cost of revenues were $36,263,000 in fiscal year 2002, representing a 1.0%
decrease from fiscal year 2001. This decrease is primarily due to a decrease in
commission expense from real estate brokerage operations.

Expenses

Sales and marketing expenses were $3,022,000 in fiscal year 2002,
representing a 4.4% decrease from fiscal year 2001. This decrease is primarily
the result of reduced real estate marketing costs.

General and administrative expenses decreased by $397,000, or 5.9%,
totaling $6,366,000 for the year. This decrease was primarily the result of
lower medical claims paid by the Companys self-funded medical plan and a
reduction in property tax expense. These decreases were partially offset by
increases in insurance costs.

12



---



##### 



Depreciation and amortization expense increased by $85,000, or 3.4%, and
totaled $2,589,000 in fiscal year 2002. This increase was the result of a full
years depreciation on the Inn at Harbour Town and the Harbour Town Golf Links
restoration project. Both of these projects were completed during fiscal year
2001, and depreciation expense applied only to the period the facilities were
in operation.

Other income (expense)



| |  |  | The Company adopted Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities,
effective November 1, 2000. This accounting standard requires the
Company to report changes in the value of its interest rate swap
agreements in its operations. The value of these agreements is
greatest when interest rates are high enough to bring the rate
protection into play. Falling interest rates during fiscal year 2002
made the rate protection less relevant, causing the fair value of the
agreements to decline by $381,000. This charge is a non-cash expense
in 2002. If interest rates rise in the future, there will be a gain
reported. 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 expense decreased by $379,000, or 13.7%, during fiscal
year 2002 as compared 2001. This decrease is attributable to lower
interest rates during fiscal year 2002 and lower outstanding debt
balances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

2001 Compared to 2000

Revenues

The Company reported revenues of $50,344,000 for fiscal year 2001, a
$1,505,000, or 3.1%, increase over fiscal year 2000.

The primary factors contributing to the $1,505,000 increase in revenues
were as follows:



| |  |  | Golf revenue in fiscal year 2001 increased by $1,839,000, or 18.6%,
as compared to 2000. The increase was due to the reopening of the
Harbour Town Golf Links in December 2000. The golf course was closed
for eight months beginning with the third quarter of fiscal 2000 to
complete a major restoration project.                                                                   
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Food and beverage operations generated revenues of $4,089,000 in
fiscal year 2001. These revenues represent an increase of $513,000, or
14.5%, over 2000. This increase was due to an increased focus on the
catering business and increased revenue at the Heritage Grill and in
the golf food and beverage operation due to the Harbour Town Golf Links
reopening as mentioned above.

13



---



##### 





| |  |  | Revenues from the Companys rental management operation in 2001
decreased by $614,000, or 4.9%, compared with 2000. This decrease is
primarily the result of the current economic
downturn and the decline in air travel following the events of September
11, 2001. Guest occupied unit nights decreased 12.8% in fiscal year
2001, totaling 55,968 for the year. The average daily rate of $202.43 in
fiscal year 2001 was an 8.2% increase over the average daily rate in 2000
of $187.05.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Inn at Harbour Town opened in November 2000, and revenues
totaled $2,372,000 during the first year of operation.                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | Gross commission revenue in fiscal year 2001 from the real estate
brokerage operation decreased by $2,559,000, or 13.3%, as compared to
2000. The soft national economy has significantly adversely affected
the second-home sales market.                                                                                                                                                                                                                                                   

Cost of revenues

Cost of revenues were $36,626,000 in fiscal year 2001, representing a 1.9%
decrease from fiscal year 2000. This decline is the net result of the
$1,769,000 decrease in commissions paid to the Companys real estate agents,
offset by a $1,046,000 increase in payments to owners on the Companys rental
management program and increased cost of sales from food and beverage
operations.

Expenses

Sales and marketing expenses were $3,161,000 in fiscal 2001, representing
a 6.0% increase from fiscal year 2000. This cost increase is due to increased
marketing efforts to promote The Inn at Harbour Town and special promotions to
maintain guest volume in the face of the current economic slowdown.

General and administrative expenses increased by $939,000, or 16.1%,
totaling $6,763,000 for the year. This increase primarily results from higher
medical claims paid by the Companys self-funded medical plan. Medical claims
increased by $564,000 in fiscal 2001, or 48%, as compared to fiscal 2000.

Depreciation and amortization expense increased by $907,000, or 56.8%, and
totaled $2,504,000 in fiscal year 2001. This increase results from
depreciation of the Companys new Harbour Town assets.

Other income (expense)

The increase in operating income in 2001 was more than offset by increases
in non-operating charges. Other expenses increased from $1,575,000 in 2000 to
$4,394,000 in 2001. Two items account for most of this increase:
14



| |  |  | The Company adopted Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities,
effective November 1, 2000. This new accounting standard requires the
Company to report changes in the value of its interest rate
swap agreements in the Consolidated Statement of Operations. The value
of these agreements is greatest when interest rates are high enough to
bring the rate protection into play. Falling interest rates during
fiscal year 2001 made the rate protection less relevant, causing the fair
value of the agreements to decline by $1,896,000. This charge is a
non-cash expense in 2001. If interest rates rise in the future, there
will be a gain reported. 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 expense on the Companys debt increased by $1,345,000, or
94.3%, in fiscal year 2001 as compared to fiscal year 2000. This
increase is attributable to the increase in outstanding debt from the
construction of the new Harbour Town assets and interest on the junior
subordinated debentures which were issued by the Company in February
2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Gain on the sale of assets totaled $172,000 for the fiscal year 2001.
These gains were the result of the sale of a Company-owned condominium and
certain other assets.

Exchange offer costs in fiscal year 2001 decreased as a result of the
completion of the exchange offer in February 2000. Legal fees and professional
fees in the amount of $294,000 were incurred in connection with the exchange
offer. Of that amount, $202,000 was expensed in fiscal year 2000 and the
remaining amount was capitalized and is being amortized over 30 years.

Income taxes

The significant increase in the valuation allowance in the year ended
October 31, 2001 is due to the Companys review of its estimate of realization,
of deferred tax assets, primarily related to the loss on the interest rate
swaps.

Liquidity and Capital Resources

Cash and cash equivalents increased by $1,520,000 during fiscal 2002 and
totaled approximately $3,062,000 at October 31, 2002, of which $2,488,000 was
restricted. Working capital increased at October 31, 2002 by $1,907,000
resulting in a working capital deficit of $1,329,000.

Under a master credit agreement with its corporate lender, the Company
maintains three loan facilities: a term loan, a revolving line of credit and a
seasonal line of credit. Available funds under these three loan facilities
total $38,740,000, of which $33,540,000 was outstanding at October 31, 2002.
The Company reduced the outstanding balance under these three loan facilities
by $2,459,000 during fiscal year 2002.

The term loan had an outstanding principal balance of $15,940,000 as of
October 31, 2002 and matures on November 1, 2008.

15



---



##### 



The revolving line of credit was pre-approved by the bank for use in the
construction of the Harbour Town construction projects. The available balance
under the revolving line of credit totals $18,300,000, of which $17,600,000 was
outstanding as of October 31, 2002.

The available balance under the seasonal line of credit totals $4,500,000
and is used to meet cash requirements during the Companys off-season winter
months. As of October 31, 2002, the seasonal line of credit had no outstanding
balance.

In November 2002, the Company completed a modification to its master
credit agreement with its principal corporate lender. The modification
extended the revolving line of credit note maturity date and the seasonal line
of credit maturity date from November 1, 2003 to November 1, 2007 and revised
certain loan covenant requirements.

The Company has two interest rates swap agreements which effectively fix
the interest rate on $24,000,000 of the principal amount outstanding under the
loan facilities described above. The amount of $18,000,000 has been fixed at
5.24% per annum plus a credit margin ranging from 1.40% to 1.65%, and the
amount of $6,000,000 has been fixed at 6.58% plus a credit margin ranging from
1.40% to 1.65%.

Recent Developments

The Heritage Classic Foundation (the Foundation), parent organization of
The Heritage golf tournament, dismissed WorldCom as the tournaments title
sponsor in July 2002, shortly before WorldCom declared bankruptcy.

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.

The Foundations board and staff are now working to find new funding
sources to sponsor the tournament. The Company is cooperating with the board
and staff of the Foundation in their efforts to assure the tournaments
continued success.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

On September 30, 1998, the Company entered into an interest rate swap
agreement, which effectively fixed the interest rate on $18 million of
principal amount outstanding under the three loan facilities the Company
maintains with its corporate lender at 5.24% plus a credit margin ranging from
1.40% to 1.65%, based on the calculation of certain financial ratios, for a
period ending November 10, 2005. The lender has the option of calling the swap
agreement on November 10, 2003.

16



---



##### 



The Company entered into a second interest rate swap agreement on May 4,
2000, which effectively fixed the interest rate on an additional $6 million of
principal amount at 6.58% plus a credit margin ranging from 1.40% to 1.65% for
a period ending November 1, 2005.

The Company has significantly reduced its interest rate risk exposure by
entering into these two swap agreements. A change in the LIBOR rate would
affect the rate at which the Company could borrow funds in excess of the $24
million fixed by the above swap agreements.

Item 8. Financial Statements and Supplementary Data.

The audited Consolidated Financial Statements of the Company which include
supplementary data are attached hereto beginning at page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions.

Information called for by Part III (Items 10, 11, 12 and 13) has been
omitted as the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the close of its fiscal year ended
October 31, 2001 a definitive Proxy Statement pursuant to Regulation 14A. Such
information is set forth in such Proxy Statement, (i) with respect to Item 10,
under the caption Election of Directors, Section 16(a) Beneficial Ownership
Reporting Compliance and Executive Officers, (ii) with respect to Item 11,
under the caption Executive Compensation and Compensation of Directors,
(iii) with respect to Item 12, under the caption Ownership of Voting
Securities in Excess of Five Percent by Beneficial Owners and Stock Ownership
of Management and Directors and (iv) with respect to Item 13, under the
caption Certain Transactions and is hereby incorporated by reference.

17



---



##### 



PART IV

Item 14. Controls and Procedures

Within 90 days of the filing of this report, the Companys Chief Executive
Officer and Chief Financial 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-14 and 15d-14). Based on
that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures are
effective to make known to them in a timely fashion material information
related to the Company required to be filed in this report. There have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their
evaluation.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



|(a)(1)-(2) |  | Financial Statements and Schedules:
|---------- |  | -----------------------------------

The financial statements and schedules listed in the accompanying Index to
Consolidated Financial Statements at page F-1 herein are filed as part of this
report.

All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

(3)  Exhibits:

The exhibits listed on the accompanying Exhibit Index at pages E-1 to E-4
are filed as part of this report.



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------

None.

18



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Sea Pines Associates, Inc., has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|                        |  |                                            
|----------------------- |  | -------------------------------------------
|                        |  | SEA PINES ASSOCIATES, INC.                 
|                        |  |                                            
|Dated: January 17, 2003 |  | By: /s/ Michael E. Lawrence                
|                        |  |                                            
|                        |  | Michael E. Lawrence
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, Sea Pines Associates, Inc., and in the capacities and on the dates
indicated.

|                                               |  |                                                                                        |  |                 
|---------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | ----------------
|Signature                                      |  | Title                                                                                  |  | Date            
|                                               |  |                                                                                        |  |                 
|/s/ Norman P. HarbergerNorman P. Harberger     |  | Chairman and Director                                                                  |  | January 17, 2003
|                                              
|/s/ Michael E. LawrenceMichael E. Lawrence     |  | Chief Executive Officer
and Director (principal
executive officer)                     |  | January 17, 2003
|                                              
|/s/ Steven P. BirdwellSteven P. Birdwell       |  | Chief Financial Officer
(principal financial
officer and principal
accounting officer) |  | January 17, 2003
|                                              
|/s/ Thomas C. MortonThomas C. Morton           |  | Treasurer and
Director                                                                 |  | January 17, 2003
|                                              
|/s/ Joseph F. VercellottiJoseph F. Vercellotti |  | Vice Chairman and
Director                                                             |  | January 17, 2003
|                                              
|/s/ Peter ParrottPeter Parrott                 |  | Secretary and
Director                                                                 |  | January 17, 2003

19



---



##### 



|                                               |  |          |  |                 
|---------------------------------------------- |  | -------- |  | ----------------
|Signature                                      |  | Title    |  | Date            
|                                               |  |          |  |                 
|                                              
|/s/ Paul B. Barringer, IIPaul B. Barringer, II |  | Director |  | January 17, 2003
|                                              
|/s/ Ralph L. Dupps, Jr.Ralph L. Dupps, Jr.     |  | Director |  | January 17, 2003
|                                              
|/s/ P.R. Easterlin, Jr.P. R. Easterlin, Jr.    |  | Director |  | January 17, 2003
|                                              
|/s/ John G. McGartyJohn G. McGarty             |  | Director |  | January 17, 2003
|                                              
|/s/ John A. NorlanderJohn A. Norlander         |  | Director |  | January 17, 2003
|                                              
|/s/ David E. PardueDavid E. Pardue             |  | Director |  | January 17, 2003
|                                              
|/s/ Marc PuntereriMarc Puntereri               |  | Director |  | January 17, 2003
|                                              
|/s/ Robert W. Siler, Jr.Robert W. Siler, Jr.   |  | Director |  | January 17, 2003
|                                              
|/s/ Kathleen B. SpeerKathleen B. Speer         |  | Director |  | January 17, 2003
|                                              
|/s/ Arthur P. SundryArthur P. Sundry           |  | Director |  | January 17, 2003

20



---



##### 



CERTIFICATIONS

I, Michael E. Lawrence, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Sea Pines Associates,
Inc.;                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21



---



##### 





| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: January 17, 2003

| |  |                                            
| |  | -------------------------------------------
| |  | /s/ Michael E. Lawrence                    
| |  |                                            
| |  | Michael E. Lawrence
Chief Executive Officer

I, Steven P. Birdwell, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Sea Pines Associates,
Inc.;                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  

22



---



##### 





| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
|
|
|
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: January 17, 2003

| |  |                                           
| |  | ------------------------------------------
| |  | /s/ Steven P. Birdwell                    
| |  |                                           
| |  | Steven P. Birdwell
Chief Financial Officer

23



---



##### 



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                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                           
|4(a)        |  | First Amended and Restated Rights Agreement
between Sea Pines Associates, Inc. and
EquiServe Trust Company, N.A. dated as of
August 23, 1993 and Amended and Restated
as of July 20, 1999 (Incorporated by reference
to Form 8A12G/A filed August 8, 1999)
|            |  |                                                                                                                                                                                                                                                           
|4(b)        |  | First Amendment to First Amended and Restated Rights
Agreement between Sea Pines Associates, Inc. and
EquiServe Trust Company, N.A. dated as of December 13,
1999 (Incorporated by reference to Exhibit 4(b) to Form 10-K
filed January 29, 2001)         
|            |  |                                                                                                                                                                                                                                                           
|4(c)        |  | Amended and Restated Trust Agreement
dated February 1, 2000 by
Sea Pines Associates, Inc. (Incorporated by
Reference to Form 10-Q filed June 14, 2000)                                                                                                    
|            |  |                                                                                                                                                                                                                                                           
|4(d)        |  | Junior Subordinated Indenture dated
February 1, 2000 between Sea Pines
Associates, Inc. and First Union National Bank
(Incorporated by reference to Form 10-Q filed
June 14, 2000)                                                                        
|            |  |                                                                                                                                                                                                                                                           
|4(e)        |  | Guarantee Agreement dated February 1, 2000
between Sea Pines Associates, Inc.
and First Union National Bank (Incorporated by
reference to Form 10-Q filed June 14, 2000)                                                                                  

E-1



---



##### 



|            |  |                                                                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                           
|            |  |                                                                                                                                                                                                                            
|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                    
|            |  |                                                                                                                                                                                                                            
|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
|            |  |                                                                                                                                                                                                                            
|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 
|            |  |                                                                                                                                                                                                                            
|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   

E-2



---



##### 



|            |  |                                                                                                                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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
|            |  |                                                                                                                                                                                                                         
|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
|            |  |                                                                                                                                                                                                                         
|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     
|            |  |                                                                                                                                                                                                                         
|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.                                                                                                                
|            |  |                                                                                                                                                                                                                         
|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)*                                                              
|            |  |                                                                                                                                                                                                                         
|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)*                                                                                     

E-3



---



##### 



|                                                            |  |                                         
|----------------------------------------------------------- |  | ----------------------------------------
|Exhibit No.                                                 |  |                                         
|                                                            |  |                                         
|21                                                          |  | Subsidiaries of the Registrant          
|                                                            |  |                                         
|23                                                          |  | Consent of Ernst & Young                
|                                                            |  |                                         
|99.1                                                        |  | Safe Harbor Disclosure                  
|                                                            |  |                                         
|99.2(a)                                                     |  | Certification of Chief Executive Officer
|                                                            |  |                                         
|99.2(b)                                                     |  | Certification of Chief Financial Officer
|                                                            |  |                                         
|*   Management Contract or Compensatory Plan
or Arrangement

E-4



---



##### 



Index to Consolidated Financial Statements

|   |                                                            |  |                 
|-- | ---------------------------------------------------------- |  | ----------------
|1. | Financial Statements of Sea Pines
Associates, Inc.         |  |                 
|   |                                                            | 
|   | Report of Independent Auditors                             |  | F-2             
|   |                                                            | 
|   | Consolidated Balance Sheets                                |  | F-3 through F-4 
|   |                                                            | 
|   | Consolidated Statements of Operations                      |  | F-5             
|   |                                                            | 
|   | Consolidated Statements of Shareholders Equity            |  | F-6             
|   |                                                            | 
|   | Consolidated Statements of Cash Flows                      |  | F-7 through F-8 
|   |                                                            | 
|   | Notes to Consolidated Financial Statements                 |  | F-9 through F-25
|   |                                                            | 
|2. | Financial Statement Schedule of Sea Pines
Associates, Inc. |  |                 
|   |                                                            | 
|   | Report of Independent Auditors                             |  | F-26            
|   |                                                            | 
|   | Schedule II  Valuation and
Qualifying Accounts            |  | F-27            

F-1



---



##### 



Report of Independent Auditors

Board of Directors and Shareholders
Sea Pines Associates, Inc.

We have audited the accompanying consolidated balance sheets of Sea Pines
Associates, Inc. (the Company) as of October 31, 2002 and 2001, and the
related consolidated statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended October 31, 2002. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sea Pines
Associates, Inc. at October 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended October 31, 2002 in conformity with accounting principles generally
accepted in the United States.

|                                  |  |                     
|--------------------------------- |  | --------------------
|                                  |  | /s/Ernst & Young LLP
|                                  |  |                     
|Atlanta, Georgia
December 6, 2002 |  |                     

F-2



---



##### 



Sea Pines Associates, Inc.

Consolidated Balance Sheets
(In thousands)

|                                       |                                                                                                                      |              |        |            |       |      |        |        |       | 
|-------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------ | ------ | ---------- | ----- | ---- | ------ | ------ | ----- | 
|                                       |                                                                                                                      |              |        | October 31
|                                       |                                                                                                                      |              |        |           
|                                       |                                                                                                                      |              |        | 2002       |       | 2001
|                                       |                                                                                                                      |              |        |            |       |     
|Assets                                 |                                                                                                                      |              |        |            |       |      |        |       
|Current assets:                        |                                                                                                                      |              |        |            |       |      |        |       
|                                       | Cash and cash equivalents                                                                                            |              |        |            |       |      |        |        |      
|                                       |                                                                                                                      | Unrestricted |        | $          | 574   |      |        | $      | 360   | 
|                                       |                                                                                                                      | Restricted   |        |            | 2,488 |      |        |        | 1,182 | 
|                                       |                                                                                                                      |              |        |            |       |      |        |       
|                                       |                                                                                                                      |              | 3,062  |            |       |      | 1,542  |       
|                                       | Accounts receivable, less allowance for
doubtful accounts of $115 and $30 at
October 31, 2002 and 2001, respectively |              |        | 1,290      |       |      |        | 946    |      
|                                       | Current portion of notes receivable                                                                                  |              |        | 88         |       |      |        | 82     |      
|                                       | Income tax refund receivable                                                                                         |              |        | 217        |       |      |        | 469    |      
|                                       | Deferred income taxes                                                                                                |              |        |           |       |      |        | 106    |      
|                                       | Inventories                                                                                                          |              |        | 859        |       |      |        | 870    |      
|                                       | Prepaid expenses                                                                                                     |              |        | 378        |       |      |        | 244    |      
|                                       |                                                                                                                      |              |        |            |       |      |        |       
|Total current assets                   |                                                                                                                      |              | 5,894  |            |       |      | 4,259  |       
|Notes receivable, less current portion |                                                                                                                      |              | 1,002  |            |       |      | 1,089  |       
|Deferred income taxes                  |                                                                                                                      |              |       |            |       |      | 94     |       
|Deferred loan fees, net                |                                                                                                                      |              | 139    |            |       |      | 154    |       
|Other assets, net                      |                                                                                                                      |              | 60     |            |       |      | 60     |       
|                                       |                                                                                                                      |              |        |            |       |      |        |       
|                                       |                                                                                                                      |              | 1,201  |            |       |      | 1,397  |       
|Real estate assets:                    |                                                                                                                      |              |        |            |       |      |        |       
|                                       | Operating properties, net                                                                                            |              |        | 44,197     |       |      |        | 46,297 |      
|                                       | Properties held for future development                                                                               |              |        | 3,219      |       |      |        | 3,219  |      
|                                       |                                                                                                                      |              |        |            |       |      |        |       
|                                       |                                                                                                                      |              | 47,416 |            |       |      | 49,516 |       
|                                       |                                                                                                                      |              |        |            |       |      |        |       
|Total assets                           |                                                                                                                      | $            | 54,511 |            |       | $    | 55,172 |       
|                                       |                                                                                                                      |              |        |            |       |      |        |       

F-3



---



##### 



Sea Pines Associates, Inc.

Consolidated Balance Sheets
(In thousands, except share amounts)

|                                                 |                                                                                                                                                                                                                                                |   |            |       |      |   |        |       |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | ----- | ---- | - | ------ | ----- | -
|                                                 |                                                                                                                                                                                                                                                |   | October 31
|                                                 |                                                                                                                                                                                                                                                |   |           
|                                                 |                                                                                                                                                                                                                                                |   | 2002       |       | 2001
|                                                 |                                                                                                                                                                                                                                                |   |            |       |     
|Liabilities and shareholders equity             |                                                                                                                                                                                                                                                |   |            |       |      |   |        |      
|Current liabilities:                             |                                                                                                                                                                                                                                                |   |            |       |      |   |        |      
|                                                 | Accounts payable and accrued expenses                                                                                                                                                                                                          |   | $          | 2,786 |      |   | $      | 2,617 |  
|                                                 | Accrued property taxes                                                                                                                                                                                                                         |   |            | 512   |      |   |        | 682   |  
|                                                 | Advance deposits                                                                                                                                                                                                                               |   |            | 2,410 |      |   |        | 1,031 |  
|                                                 | Line of credit                                                                                                                                                                                                                                 |   |            |      |      |   |        | 2,000 |  
|                                                 | Current portion of deferred revenue and other
long-term liabilities                                                                                                                                                                            |   |            | 373   |      |   |        | 367   |  
|                                                 | Current portion of long-term debt                                                                                                                                                                                                              |   |            | 1,142 |      |   |        | 798   |  
|                                                 |                                                                                                                                                                                                                                                |   |            |       |      |   |        |      
|                                                 | Total current liabilities                                                                                                                                                                                                                      |   |            | 7,223 |      |   |        | 7,495 |  
|Long-term debt, less current portion             |                                                                                                                                                                                                                                                |   | 32,398     |       |      |   | 33,201 |      
|Interest rate swap agreement                     |                                                                                                                                                                                                                                                |   | 2,277      |       |      |   | 1,896  |      
|Deferred revenue and other long-term liabilities |                                                                                                                                                                                                                                                |   | 793        |       |      |   | 921    |      
|Trust preferred securities                       |                                                                                                                                                                                                                                                |   | 2,480      |       |      |   | 2,480  |      
|                                                 |                                                                                                                                                                                                                                                |   |            |       |      |   |        |      
|Total liabilities                                |                                                                                                                                                                                                                                                |   | 45,171     |       |      |   | 45,993 |      
|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 October 31,
2002 and 2001, respectively (liquidation
preference of $1,679 at October 31, 2002 and
2001, 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; 3,573,400 shares and 3,559,400 shares
issued and outstanding at October 31, 2002 and
2001, respectively                                                                              |   |            | 7,759 |      |   |        | 7,559 |  
|                                                 | Unearned stock compensation                                                                                                                                                                                                                    |   |            | (235  | )    |   |        | (159  | )
|                                                 | Retained earnings                                                                                                                                                                                                                              |   |            | 522   |      |   |        | 485   |  
|                                                 |                                                                                                                                                                                                                                                |   |            |       |      |   |        |      
|Total shareholders equity                       |                                                                                                                                                                                                                                                |   | 9,340      |       |      |   | 9,179  |      
|                                                 |                                                                                                                                                                                                                                                |   |            |       |      |   |        |      
|Total liabilities and shareholders equity       |                                                                                                                                                                                                                                                | $ | 54,511     |       |      | $ | 55,172 |      
|                                                 |                                                                                                                                                                                                                                                |   |            |       |      |   |        |      

See accompanying notes.

F-4



---



##### 



Sea Pines Associates, Inc.

Consolidated Statements of Operations
(In thousands, except per share amounts)

|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |        |  
|-------------------------------------------------------------- | ---------------------------------------------- | - | --------------------- | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                               |                                                |   | Year ended October 31
|                                                               |                                                |   |                      
|                                                               |                                                |   | 2002                  |        | 2001 |   | 2000  
|                                                               |                                                |   |                       |        |      |   |       
|Revenues                                                       |                                                | $ | 51,142                |        |      | $ | 50,344 |        |   | $ | 48,839 |       
|Cost and expenses:                                             |                                                |   |                       |        |      |   |        |        |   |   |        |       
|                                                               | Cost of revenues                               |   |                       | 36,263 |      |   |        | 36,626 |   |   |        | 37,349 |  
|                                                               | Sales and marketing expenses                   |   |                       | 3,022  |      |   |        | 3,161  |   |   |        | 2,981  |  
|                                                               | General and administrative expenses            |   |                       | 6,366  |      |   |        | 6,763  |   |   |        | 5,824  |  
|                                                               | Depreciation and amortization                  |   |                       | 2,589  |      |   |        | 2,504  |   |   |        | 1,597  |  
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       
|                                                               |                                                |   | 48,240                |        |      |   | 49,054 |        |   |   | 47,751 |       
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       
|Income from operations                                         |                                                |   | 2,902                 |        |      |   | 1,290  |        |   |   | 1,088  |       
|Other income (expense):                                        |                                                |   |                       |        |      |   |        |        |   |   |        |       
|                                                               | Gain (loss) on sale or disposal of
assets, net |   |                       |       |      |   |        | 172    |   |   |        | (66    | )
|                                                               | Interest income                                |   |                       | 111    |      |   |        | 101    |   |   |        | 119    |  
|                                                               | Interest rate swap agreements                  |   |                       | (381   | )    |   |        | (1,896 | ) |   |        |       |  
|                                                               | Interest expense, net of amounts
capitalized   |   |                       | (2,392 | )    |   |        | (2,771 | ) |   |        | (1,426 | )
|                                                               | Exchange offer costs                           |   |                       |       |      |   |        |       |   |   |        | (202   | )
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       
|                                                               |                                                |   | (2,662                | )      |      |   | (4,394 | )      |   |   | (1,575 | )     
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       
|Income (loss) before income taxes                              |                                                |   | 240                   |        |      |   | (3,104 | )      |   |   | (487   | )     
|Provision for (benefit from) income taxes                      |                                                |   | 43                    |        |      |   | (430   | )      |   |   | (98    | )     
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       
|Net income (loss)                                              |                                                |   | 197                   |        |      |   | (2,674 | )      |   |   | (389   | )     
|Preferred stock dividend requirements                          |                                                |   | 160                   |        |      |   | 160    |        |   |   | 341    |       
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       
|Net income (loss) attributable to common
stock                 |                                                | $ | 37                    |        |      | $ | (2,834 | )      |   | $ | (730   | )     
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       
|Net income (loss) per share of common
stock; basic and diluted |                                                | $ | 0.01                  |        |      | $ | (0.80  | )      |   | $ | (0.23  | )     
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       
|Weighted average shares outstanding                            |                                                |   | 3,568                 |        |      |   | 3,554  |        |   |   | 3,174  |       
|                                                               |                                                |   |                       |        |      |   |        |        |   |   |        |       

See accompanying notes.

F-5



---



##### 



Sea Pines Associates, Inc.

Consolidated Statements of Shareholders Equity
(In thousands)

|                            |                                       |  |                 |        |              |   |        |        |          |  |              |       |          |   |       |       |  |   |      |      |   |   |       |        |   |   |        |        |  
|--------------------------- | ------------------------------------- |  | --------------- | ------ | ------------ | - | ------ | ------ | -------- |  | ------------ | ----- | -------- | - | ----- | ----- |  | - | ---- | ---- | - | - | ----- | ------ | - | - | ------ | ------ | -
|                            |                                       |  | Series A        |        |              |   |        |        |          |  |              |       | Unearned |   |       |       |  |   |      |      |  
|                            |                                       |  | Preferred Stock |        | Common Stock |   | Stock  |        | Retained |  |              |       |         
|                            |                                       |  | Shares          |        | Amount       |   | Shares |        | Amount   |  | Compensation |       | Earnings |   | Total
|                            |                                       |  |                 |        |              |   |        |        |          |  |              |       |          |   |      
|Balance at October
31, 1999 |                                       |  | 1,228           |        |              | $ | 7,218  |        |          |  | 1,843        |       |          | $ | 2,166 |       |  | $ |     |      |   | $ | 6,510 |        |   | $ | 15,894 |       
|                            | Net loss                              |  |                 |       |              |   |        |       |          |  |              |      |          |   |       |      |  |   |      |     |   |   |       | (389   | ) |   |        | (389   | )
|                            | Trust preferred
exchange              |  |                 | (1,007 | )            |   |        | (5,924 | )        |  |              | 1,703 |          |   |       | 5,177 |  |   |      |     |   |   |       | (1,733 | ) |   |        | (2,480 | )
|                            | Preferred stock
dividend              |  |                 |       |              |   |        |       |          |  |              |      |          |   |       |      |  |   |      |     |   |   |       | (1,069 | ) |   |        | (1,069 | )
|                            |                                       |  |                 |        |              |   |        |        |          |  |              |       |          |   |       |       |  |   |      |      |   |   |       |        |   |   |        |       
|Balance at October
31, 2000 |                                       |  | 221             |        |              |   | 1,294  |        |          |  | 3,546        |       |          |   | 7,343 |       |  |   |     |      |   |   | 3,319 |        |   |   | 11,956 |       
|                            | Net loss                              |  |                 |       |              |   |        |       |          |  |              |      |          |   |       |      |  |   |      |     |   |   |       | (2,674 | ) |   |        | (2,674 | )
|                            | Issuance of common
stock to directors |  |                 |       |              |   |        |       |          |  |              | 14    |          |   |       | 63    |  |   |      | (63  | ) |   |       |       |   |   |        |       |  
|                            | Deferred stock plan                   |  |                 |       |              |   |        |       |          |  |              |      |          |   |       | 153   |  |   |      | (153 | ) |   |       |       |   |   |        |       |  
|                            | Amortization of
stock compensation    |  |                 |       |              |   |        |       |          |  |              |      |          |   |       |      |  |   |      | 57   |   |   |       |       |   |   |        | 57     |  
|                            | Preferred stock
dividend              |  |                 |       |              |   |        |       |          |  |              |      |          |   |       |      |  |   |      |     |   |   |       | (160   | ) |   |        | (160   | )
|                            |                                       |  |                 |        |              |   |        |        |          |  |              |       |          |   |       |       |  |   |      |      |   |   |       |        |   |   |        |       
|Balance at October
31, 2001 |                                       |  | 221             |        |              |   | 1,294  |        |          |  | 3,560        |       |          |   | 7,559 |       |  |   | (159 | )    |   |   | 485   |        |   |   | 9,179  |       
|                            | Net income                            |  |                 |       |              |   |        |       |          |  |              |      |          |   |       |      |  |   |      |     |   |   |       | 197    |   |   |        | 197    |  
|                            | Issuance of common
stock to directors |  |                 |       |              |   |        |       |          |  |              | 14    |          |   |       | 84    |  |   |      | (84  | ) |   |       |       |   |   |        |       |  
|                            | Deferred stock plan                   |  |                 |       |              |   |        |       |          |  |              |      |          |   |       | 116   |  |   |      | (116 | ) |   |       |       |   |   |        |       |  
|                            | Amortization of
stock compensation    |  |                 |       |              |   |        |       |          |  |              |      |          |   |       |      |  |   |      | 124  |   |   |       |       |   |   |        | 124    |  
|                            | Preferred stock
dividend              |  |                 |       |              |   |        |       |          |  |              |      |          |   |       |      |  |   |      |     |   |   |       | (160   | ) |   |        | (160   | )
|                            |                                       |  |                 |        |              |   |        |        |          |  |              |       |          |   |       |       |  |   |      |      |   |   |       |        |   |   |        |       
|Balance at October
31, 2002 |                                       |  | 221             |        |              | $ | 1,294  |        |          |  | 3,574        |       |          | $ | 7,759 |       |  | $ | (235 | )    |   | $ | 522   |        |   | $ | 9,340  |       
|                            |                                       |  |                 |        |              |   |        |        |          |  |              |       |          |   |       |       |  |   |      |      |   |   |       |        |   |   |        |       

See accompanying notes.

F-6



---



##### 



Sea Pines Associates, Inc.

Consolidated Statements of Cash Flows
(In thousands)

|                                                                                                   |                                                    |   |                       |        |      |   |        |        |   |   |         |         |  
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------- | - | --------------------- | ------ | ---- | - | ------ | ------ | - | - | ------- | ------- | -
|                                                                                                   |                                                    |   | Year ended October 31
|                                                                                                   |                                                    |   |                      
|                                                                                                   |                                                    |   | 2002                  |        | 2001 |   | 2000  
|                                                                                                   |                                                    |   |                       |        |      |   |       
|Cash flows from operating activities                                                               |                                                    |   |                       |        |      |   |        |        |   |   |         |        
|Net income (loss)                                                                                  |                                                    | $ | 197                   |        |      | $ | (2,674 | )      |   | $ | (389    | )      
|Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                                    |   |                       |        |      |   |        |        |   |   |         |        
|                                                                                                   | Depreciation and amortization                      |   |                       | 2,589  |      |   |        | 2,504  |   |   |         | 1,597   |  
|                                                                                                   | Allowance for doubtful accounts                    |   |                       | 85     |      |   |        | 12     |   |   |         | (23     | )
|                                                                                                   | Loss (gain) on sale of assets                      |   |                       |       |      |   |        | (172   | ) |   |         | 66      |  
|                                                                                                   | Amortization of stock compensation                 |   |                       | 124    |      |   |        | 57     |   |   |         |        |  
|                                                                                                   | Interest rate swap agreement                       |   |                       | 381    |      |   |        | 1,896  |   |   |         |        |  
|                                                                                                   | Deferred income taxes                              |   |                       | 200    |      |   |        | 135    |   |   |         | (252    | )
|Changes in assets and liabilities:                                                                 |                                                    |   |                       |        |      |   |        |        |   |   |         |        
|                                                                                                   | Restricted cash                                    |   |                       | (1,306 | )    |   |        | 1,469  |   |   |         | (271    | )
|                                                                                                   | Accounts and notes receivable                      |   |                       | (348   | )    |   |        | 190    |   |   |         | 953     |  
|                                                                                                   | Inventories                                        |   |                       | 11     |      |   |        | (177   | ) |   |         | 44      |  
|                                                                                                   | Prepaid expenses                                   |   |                       | (134   | )    |   |        | (8     | ) |   |         | (96     | )
|                                                                                                   | Other assets                                       |   |                       |       |      |   |        |       |   |   |         | (92     | )
|                                                                                                   | Accounts payable and accrued expenses              |   |                       | (1     | )    |   |        | (1,495 | ) |   |         | 1,495   |  
|                                                                                                   | Advance deposits                                   |   |                       | 1,379  |      |   |        | (1,531 | ) |   |         | 407     |  
|                                                                                                   | Deferred revenue                                   |   |                       | (122   | )    |   |        | 156    |   |   |         | (310    | )
|                                                                                                   | Income taxes payable (receivable)                  |   |                       | 252    |      |   |        | (623   | ) |   |         | 500     |  
|                                                                                                   |                                                    |   |                       |        |      |   |        |        |   |   |         |        
|Net cash provided by (used in) operating activities                                                |                                                    |   | 3,307                 |        |      |   | (261   | )      |   |   | 3,629   |        
|Cash flows from investing activities                                                               |                                                    |   |                       |        |      |   |        |        |   |   |         |        
|                                                                                                   | Proceeds from sale of assets                       |   |                       | 5      |      |   |        | 335    |   |   |         | 90      |  
|                                                                                                   | Capital expenditures and property acquisitions     |   |                       | (468   | )    |   |        | (1,784 | ) |   |         | (17,082 | )
|                                                                                                   |                                                    |   |                       |        |      |   |        |        |   |   |         |        
|Net cash used in investing activities                                                              |                                                    |   | (463                  | )      |      |   | (1,449 | )      |   |   | (16,992 | )      
|Cash flows from financing activities                                                               |                                                    |   |                       |        |      |   |        |        |   |   |         |        
|                                                                                                   | Payment of deferred loan fees                      |   |                       | (11    | )    |   |        | (77    | ) |   |         | (40     | )
|                                                                                                   | Additional borrowing on revolving loan             |   |                       | 600    |      |   |        | 2,300  |   |   |         | 14,250  |  
|                                                                                                   | (Repayment) additional borrowing on line of credit |   |                       | (2,000 | )    |   |        | 2,000  |   |   |         |        |  
|                                                                                                   | Principal repayments of debt                       |   |                       | (1,059 | )    |   |        | (2,034 | ) |   |         | (400    | )
|                                                                                                   | Preferred stock dividends paid                     |   |                       | (160   | )    |   |        | (341   | ) |   |         | (887    | )
|                                                                                                   |                                                    |   |                       |        |      |   |        |        |   |   |         |        
|Net cash (used in) provided by financing activities                                                |                                                    |   | (2,630                | )      |      |   | 1,848  |        |   |   | 12,923  |        
|                                                                                                   |                                                    |   |                       |        |      |   |        |        |   |   |         |        

F-7



---



##### 



Sea Pines Associates, Inc.

Consolidated Statements of Cash Flows (continued)
(In thousands)

|                                                                  |  |                       |     |      |  |      |     |  |  |   |      |  
|----------------------------------------------------------------- |  | --------------------- | --- | ---- |  | ---- | --- |  |  | - | ---- | -
|                                                                  |  | Year ended October 31
|                                                                  |  |                      
|                                                                  |  | 2002                  |     | 2001 |  | 2000
|                                                                  |  |                       |     |      |  |     
|Net increase (decrease) in unrestricted cash and
cash equivalents |  |                       | 214 |      |  |      | 138 |  |  |   | (440 | )
|Unrestricted cash and cash equivalents at beginning
of year       |  |                       | 360 |      |  |      | 222 |  |  |   | 662  |  
|                                                                  |  |                       |     |      |  |      |     |  |  |   |      |  
|Unrestricted cash and cash equivalents at end of year             |  | $                     | 574 |      |  | $    | 360 |  |  | $ | 222  |  
|                                                                  |  |                       |     |      |  |      |     |  |  |   |      |  

See accompanying notes.

F-8



---



##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements

October 31, 2002

1. Description of Business and Summary of Significant Accounting Policies

Sea Pines Associates, Inc. (SPA or the Company) was incorporated in South
Carolina on May 4, 1987. The Company was principally organized to acquire, own
and operate certain resort assets in Sea Pines Plantation on Hilton Head
Island, South Carolina.

The wholly-owned subsidiaries of the Company are Sea Pines Company, Inc.
(SPC), Sea Pines Real Estate Company (SPREC), Fifth Golf Course Club, Inc.,
and Sea Pines Associates Trust I. SPC is a full-service resort, which provides
guests with the use of three golf courses, tennis facilities, inn and
conference facilities, various other recreational facilities, home and villa
rental management operations, and food-and-beverage services. SPREC provides
real estate brokerage services for buyers and sellers of real estate in the
Hilton Head Island, South Carolina area (see Note 17 for business segment
information). Fifth Golf Course Club, Inc. owns certain acreage which could be
used for outdoor recreational activities. Sea Pines Associates Trust I holds
certain company debentures as security for notes it has issued.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated.

Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers all
short-term investments with maturities of 90 days or less at the time of
purchase to be cash equivalents.

Revenue Recognition

Revenues and expenses from resort operations are recognized as goods are sold
and services are provided. Real estate brokerage revenues are recognized upon
closing of the sale. Advance deposits are required for certain resort
reservations and real estate transactions and are not recognized as revenue
until earned. The Companys accounts receivable are unsecured.

F-9



---



##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

1. Description of Business and Summary of Significant Accounting Policies (continued)

Cost of Revenues

Cost of revenues includes payments to home and villa owners, real estate sales
commissions, cost of inventories sold, credit-card commissions and costs
incurred to operate and maintain operating properties.

Concentration of Credit Risk

The Company maintains substantially all of its cash with one financial
institution. Account balances greater than $100,000 are not federally insured
and are subject to a loss if the financial institution fails. Management
believes such risk is minimal based on the current financial condition of the
financial institution.

Restricted Cash

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.

Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or net
realizable value.

Advertising Expense

The cost of advertising is expensed as incurred and is classified as selling
and marketing expenses in the Consolidated Statements of Operations.

Real Estate Assets

Real estate assets are recorded at cost less any impairment losses, if
applicable. The costs of new development, additions and improvements which
substantially extend the useful lives of assets are capitalized. Capitalized
costs include costs of construction, property taxes, interest and miscellaneous
expenses incurred during the construction period. Capitalized construction
period interest totaled approximately $0, $61,000 and $694,000 in 2002, 2001
and 2000, respectively. Repairs and maintenance costs are expensed as
incurred.

F-10



---



##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

1. Description of Business and Summary of Significant Accounting Policies (continued)

Real Estate Assets (continued)

The Company provides depreciation for financial reporting purposes when the
asset is placed in operation using straight-line method over the estimated
useful lives of the assets, which range from five to 39 years.

Other Assets

Deferred loan fees are amortized over the lives of the corresponding debt.

Impairment of Long-Lived Assets

An impairment loss is recognized whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company considers historical performance and future estimated results in its
evaluation of potential impairment and then compares the carrying amount of the
asset to the estimated future cash flows expected to result from the use of the
asset. If the carrying amount of the asset exceeds the estimated expected
future cash flows, the Company measures the amount of the impairment by
comparing the carrying amount of the asset to its fair value. The Company has
not incurred any impairment losses for the years ended October 31, 2002, 2001
or 2000.

Financial Instruments

The carrying amounts of cash and cash equivalents, trade receivables, notes
receivable, other current assets, accounts payable, line of credit with bank,
long-term debt and accruals meeting the definition of financial instruments
approximate their fair values as of October 31, 2002 and 2001.

Income Taxes

The Company accounts for income taxes using the liability method, which
requires recognition of deferred tax liabilities and assets based on temporary
differences between the financial statement and tax basis of assets and
liabilities using current statutory tax rates. A valuation allowance is
established against net deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized.

F-11



---



##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

1. Description of Business and Summary of Significant Accounting Policies (continued)

Interest Rate Swap Agreements

On November 1, 2000, the Company adopted SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. SFAS 133 requires the Company
to recognize all derivative instruments on the balance sheet at fair value.
The adoption of SFAS 133 affects the accounting for the Companys interest rate
swap agreements. The Company accounts for interest expense under its swap
agreements by recording differences between the interest rates on the
underlying debt and the swap rates, applied to the notional amount of the
swaps.

The Companys results of operations can be significantly affected by changes in
interest rates as the outstanding debt has variable interest rates based on a
LIBOR index. To manage the risks associated with changes in interest rates,
the Company entered into two interest rate swap agreements, which have
maturities on November 1, 2005 and November 10, 2005, to fix the interest rate
the Company is charged on a notional amount of $24 million of the outstanding
debt.

Upon adoption of SFAS 133, the Company recorded the fair market value of the
interest rate swaps on its consolidated balance sheet. On an ongoing basis,
the Company will adjust the balance sheet to reflect the current fair market
value of the interest rate swap agreements. The interest rate swap agreements
do not qualify for hedge accounting as defined by SFAS 133, and accordingly,
the change in the fair value of the derivative is immediately recognized in the
consolidated statement of operations. The Company recorded $381,000 and
$1,896,000 of expense in the consolidated statement of operations for the
change in fair value of the interest rate swap agreement for the year ended
October 31, 2002 and 2001, respectively.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No.
144). SFAS No. 144 replaces SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of. SFAS No. 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 No. 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the

F-12



---



##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

1. Description of Business and Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

rest of the entity and that will be eliminated from the ongoing operations of
the entity in a disposal transaction. The Company will adopt the standard on
November 1, 2002 and expects no material impact on its consolidated financial
statements.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Reclassifications

Certain amounts in the prior years financial statements have been reclassified
to conform to current year presentation.

2. Statements of Cash Flows

Supplemental disclosure of cash flow information follows (in thousands of
dollars):

|                               |                                      |  |                       |       |      |  |      |       |  |  |   |       | 
|------------------------------ | ------------------------------------ |  | --------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                               |                                      |  | Year ended October 31
|                               |                                      |  |                      
|                               |                                      |  | 2002                  |       | 2001 |  | 2000
|                               |                                      |  |                       |       |      |  |     
|Cash paid during the year for: |                                      |  |                       |       |      |  |      |       |  |  |   |      
|                               | Interest, net of amounts capitalized |  | $                     | 2,409 |      |  | $    | 2,803 |  |  | $ | 1,305 | 
|                               | Income taxes                         |  |                       |      |      |  |      |      |  |  |   |      | 

F-13



---



##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

3. Inventories

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

|                                |  |            |     |      |  |   |     | 
|------------------------------- |  | ---------- | --- | ---- |  | - | --- | 
|                                |  | October 31
|                                |  |           
|                                |  | 2002       |     | 2001
|                                |  |            |     |     
|Merchandise                     |  | $          | 667 |      |  | $ | 678 | 
|Supplies, parts and accessories |  |            | 35  |      |  |   | 35  | 
|Food and beverages              |  |            | 115 |      |  |   | 111 | 
|Other                           |  |            | 42  |      |  |   | 46  | 
|                                |  |            |     |      |  |   |     | 
|                                |  | $          | 859 |      |  | $ | 870 | 
|                                |  |            |     |      |  |   |     | 

4. Real Estate Assets

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

|                              |  |            |         |      |  |   |         |  
|----------------------------- |  | ---------- | ------- | ---- |  | - | ------- | -
|                              |  | October 31
|                              |  |           
|                              |  | 2002       |         | 2001
|                              |  |            |         |     
|Land and improvements         |  | $          | 26,487  |      |  | $ | 26,455  |  
|Buildings                     |  |            | 23,265  |      |  |   | 23,164  |  
|Machinery and equipment       |  |            | 11,642  |      |  |   | 11,385  |  
|                              |  |            |         |      |  |   |         |  
|                              |  |            | 61,394  |      |  |   | 61,004  |  
|Less accumulated depreciation |  |            | (17,197 | )    |  |   | (14,707 | )
|                              |  |            |         |      |  |   |         |  
|                              |  | $          | 44,197  |      |  | $ | 46,297  |  
|                              |  |            |         |      |  |   |         |  

Properties held for future development of $3,219,000 at October 31, 2002 and
2001, respectively, consist primarily of land and certain future development
rights.

F-14



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

5. Long-Term Debt and Line of Credit Agreement

Long-term debt consists of the following (in thousands of dollars):

|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |            |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ------ | ---- |  | - | ------ | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | October 31
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | 2002       |        | 2001
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |            |        |     
|Term note payable to bank, bearing interest at
various London Interbank Offered Rates (LIBOR)
(1.82% at October 31, 2002), plus 1.40% to 1.65%
collateralized by substantially all assets of the
Company. Principal is payable monthly from May
through October each year in amounts ranging from
$133,050 in 2002 to $220,979 in 2008, with a
balloon payment due on maturity. Interest is
payable monthly. The note matures November 1,
2008 |  | $          | 15,940 |      |  | $ | 16,999 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                              
|$18.3 million revolving line of credit to bank,
bearing interest at various London Interbank
Offered Rates (LIBOR) (1.82% at October 31, 2002),
plus 1.40% to 1.65%, collateralized by
substantially all assets of the Company. Interest
is payable monthly. The line matures November 1,
2007                                                                                                                                                 |  |            | 17,600 |      |  |   | 17,000 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |            |        |      |  |   |        |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |            | 33,540 |      |  |   | 33,999 |  
|Less current portion of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                         |  |            | (1,142 | )    |  |   | (798   | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |            |        |      |  |   |        |  
|Total long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $          | 32,398 |      |  | $ | 33,201 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |            |        |      |  |   |        |  

F-15



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

5. Long-Term Debt and Line of Credit Agreement (continued)

Scheduled maturities of long-term debt as of October 31, 2002 are as follows
(in thousands of dollars):

|                       |            |   |        |        | 
|---------------------- | ---------- | - | ------ | ------ | 
|Year
ending October 31
|
|                       | 2003       |   | $      | 1,142  | 
|                       | 2004       |   |        | 1,230  | 
|                       | 2005       |   |        | 1,325  | 
|                       | 2006       |   |        | 1,430  | 
|                       | 2007       |   |        | 1,540  | 
|                       | Thereafter |   |        | 26,873 | 
|                       |            |   |        |       
|Total                  |            | $ | 33,540 |       
|                       |            |   |        |       

The loan agreement contains provisions and covenants which impose certain
restrictions on the use of the Companys assets. The significant restrictions
include limitations as to new indebtedness, the sale or disposal of certain
assets, capital contributions and investments, and new lines of business.

The Company maintains a $4,500,000 seasonal line of credit (the Seasonal
Line) with the same bank. Interest is payable monthly at LIBOR plus 1.5% and
the Seasonal Line expires November 1, 2007. Borrowings under the Seasonal Line
are also collateralized by substantially all of the assets of the Company. As
of October 31, 2002, the seasonal line had no outstanding balance.

The 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, November 10, 2005. The lender has
the option of calling the swap agreement on November 10, 2003. The second
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.

Subsequent Event

In November 2002, the Company completed a modification to its master credit
agreement with its principal corporate lender. The modification extended both
the revolving line of credit note maturity date and the seasonal line of credit
maturity date from November 1, 2003 to November 1, 2007 and revised certain
loan covenant requirements.

F-16



---



##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

6. Income Taxes

The provision (benefit) for income taxes consists of the following (in
thousands of dollars):

|                              |         |   |                       |      |      |   |      |      |   |   |      |      |  
|----------------------------- | ------- | - | --------------------- | ---- | ---- | - | ---- | ---- | - | - | ---- | ---- | -
|                              |         |   | Year ended October 31
|                              |         |   |                      
|                              |         |   | 2002                  |      | 2001 |   | 2000
|                              |         |   |                       |      |      |   |     
|Current provision (benefit):  |         |   |                       |      |      |   |      |      |   |   |      |     
|                              | Federal |   | $                     | (157 | )    |   | $    | (548 | ) |   | $    | 133  |  
|                              | State   |   |                       |     |      |   |      | (17  | ) |   |      | 21   |  
|                              |         |   |                       |      |      |   |      |      |   |   |      |     
|                              |         |   | (157                  | )    |      |   | (565 | )    |   |   | 154  |     
|Deferred provision (benefit): |         |   |                       |      |      |   |      |      |   |   |      |     
|                              | Federal |   |                       | 173  |      |   |      | 172  |   |   |      | (218 | )
|                              | State   |   |                       | 27   |      |   |      | (37  | ) |   |      | (34  | )
|                              |         |   |                       |      |      |   |      |      |   |   |      |     
|                              |         |   | 200                   |      |      |   | 135  |      |   |   | (252 | )   
|                              |         |   |                       |      |      |   |      |      |   |   |      |     
|                              |         | $ | 43                    |      |      | $ | (430 | )    |   | $ | (98  | )   
|                              |         |   |                       |      |      |   |      |      |   |   |      |     

The reconciliation between actual income tax expense (benefit) and the amount
calculated by applying the federal statutory rates to income (loss) before
income taxes follows (in thousands of dollars):

|                                                                               |  |                       |     |      |  |      |        |   |  |   |      |  
|------------------------------------------------------------------------------ |  | --------------------- | --- | ---- |  | ---- | ------ | - |  | - | ---- | -
|                                                                               |  | Year ended October 31
|                                                                               |  |                      
|                                                                               |  | 2002                  |     | 2001 |  | 2000
|                                                                               |  |                       |     |      |  |     
|Tax expense (benefit) at statutory
federal income tax rates                    |  | $                     | 82  |      |  | $    | (1,051 | ) |  | $ | (165 | )
|State income tax expense (benefit), net
of federal income tax benefit (charge) |  |                       | 9   |      |  |      | (58    | ) |  |   | (16  | )
|(Decrease) increase in valuation allowance                                     |  |                       | (44 | )    |  |      | 707    |   |  |   |     |  
|Offering costs                                                                 |  |                       |    |      |  |      |       |   |  |   | 77   |  
|Other                                                                          |  |                       | (4  | )    |  |      | (28    | ) |  |   | 6    |  
|                                                                               |  |                       |     |      |  |      |        |   |  |   |      |  
|                                                                               |  | $                     | 43  |      |  | $    | (430   | ) |  | $ | (98  | )
|                                                                               |  |                       |     |      |  |      |        |   |  |   |      |  

F-17



---



##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

6. Income Taxes (continued)

The tax effects of the types of temporary differences and carryovers, which
give rise to deferred income tax assets (liabilities), are as follows (in
thousands of dollars):

|                                  |                               |                                       |      |            |       |      |      |      |       |   |      |     |      |  
|--------------------------------- | ----------------------------- | ------------------------------------- | ---- | ---------- | ----- | ---- | ---- | ---- | ----- | - | ---- | --- | ---- | -
|                                  |                               |                                       |      | October 31
|                                  |                               |                                       |      |           
|                                  |                               |                                       |      | 2002       |       | 2001 |      | 2000
|                                  |                               |                                       |      |            |       |      |      |     
|Deferred revenue:                 |                               |                                       |      |            |       |      |      |      |       |   |      |    
|                                  | License and fee income        |                                       | $    | 432        |       |      | $    | 480  |       |   | $    | 416 |     
|                                  | Country club membership sales |                                       |      | 29         |       |      |      | 7    |       |   |      | 34  |     
|Loss on interest rate swaps       |                               |                                       | 849  |            |       |      | 707  |      |       |   |     |    
|Charitable contribution carryover |                               |                                       | 10   |            |       |      | 7    |      |       |   | 4    |    
|State net operating loss          |                               |                                       | 88   |            |       |      | 65   |      |       |   |     |    
|Severance payments                |                               |                                       |     |            |       |      | 44   |      |       |   |     |    
|Accrued liabilities               |                               |                                       | 208  |            |       |      | 138  |      |       |   | 142  |    
|Other assets                      |                               |                                       |     |            |       |      | 12   |      |       |   | 7    |    
|                                  |                               |                                       |      |            |       |      |      |      |       |   |      |    
|                                  |                               | Gross deferred income tax assets      |      |            | 1,616 |      |      |      | 1,460 |   |      |     | 603  |  
|Less: Valuation allowance         |                               |                                       | (686 | )          |       |      | (730 | )    |       |   | (23  | )  
|                                  |                               |                                       |      |            |       |      |      |      |       |   |      |    
|                                  |                               | Deferred income tax assets            |      |            | 930   |      |      |      | 730   |   |      |     | 580  |  
|                                  |                               |                                       |      |            |       |      |      |      |       |   |      |    
|Depreciation                      |                               |                                       | (763 | )          |       |      | (442 | )    |       |   | (164 | )  
|Other liabilities                 |                               |                                       | (167 | )          |       |      | (88  | )    |       |   | (81  | )  
|                                  |                               |                                       |      |            |       |      |      |      |       |   |      |    
|                                  |                               | Gross deferred income tax liabilities |      |            | (930  | )    |      |      | (530  | ) |      |     | (245 | )
|                                  |                               |                                       |      |            |       |      |      |      |       |   |      |    
|Net deferred income tax assets    |                               | $                                     |     |            |       | $    | 200  |      |       | $ | 335  |    
|                                  |                               |                                       |      |            |       |      |      |      |       |   |      |    

The significant increase in the valuation allowance in the year ended October
31, 2001 is due to the Companys review of its estimate of realization of
deferred tax assets, primarily related to the loss on the interest rate swaps.

7. Shareholders Equity

Preferred Stock

Of the 5,000,000 authorized shares of preferred stock, 2,000,000 shares are
designated as Series A cumulative preferred stock and 20,000 shares are
designated as Series B junior cumulative preferred stock. The Board of
Directors has the authority to approve the issuance amount, rights and powers
of an additional 2,980,000 shares of non-Series A preferred stock except that
such rights and powers shall not be superior to those of the Series A
cumulative preferred shares.

F-18



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

7. Shareholders Equity (continued)

Preferred Stock (continued)

The Series A cumulative preferred shares provide for a cumulative dividend of
$0.722 per share per annum, payable in arrears as declared by the Board of
Directors. These shares have a liquidation value of $7.60 per share plus
accumulated but unpaid dividends. If four or more years of dividends are in
arrears, the Series A cumulative preferred shareholders will be entitled to
elect a majority of the Board of Directors of the Company. All or any part of
such shares may be redeemed at the option of the Company at liquidation value.
As of October 31, 2002, all preferred stock dividends applicable to fiscal year
ended October 31, 2001 and all prior years have been declared and paid.

The Series B junior cumulative preferred shares are subject to the prior and
superior rights of the holders of the Series A and all other classes of
preferred shares. These Series B shares provide for a cumulative dividend of
the greater of $0.25 per share or an amount as adjusted for the anti-dilution
number (initially 1,000). Each share of the Series B also entitles the holder
to the number of votes equal to the anti-dilution number. Generally, the
Series B and common shareholders will vote together as one class on all matters
submitted to a vote. The Series B shares have a liquidation value of $100 per
share, plus dividends thereon. The Series B shares are not redeemable. No
shares of the Series B junior cumulative preferred stock have been issued (see
Stock Purchase Rights Plan).

Common Stock

Of the 23,000,000 authorized shares of common stock, 2,000,000 shares are
designated as special common stock and 1,000,000 are designated as nonvoting
common stock. All other shares are voting. The 3,573,400 shares of common
stock outstanding as of October 31, 2002 are all voting common stock.

Each share of common stock (regardless of class) shall participate on an equal
and pro rata basis in all dividends and other distributions, including
liquidation, subject to the rights of the preferred shareholders.

Holders of shares of voting common stock are entitled to one vote per share.
Holders of special common shares (if issued) will have such voting rights as
specified by the Board of Directors, except that such rights will not be
superior to the voting common stock.

F-19



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

7. Shareholders Equity (continued)

Preferred Stock Exchange Offer

In February 2000, the Company completed its Exchange Offer pursuant to its
December 1999 Exchange Offer Prospectus. The Exchange Offer allowed holders of
the Companys Series A Preferred Stock to exchange each preferred share for
either 2 1/2 shares of the Companys common stock or an equivalent number of
new 9.5% Company-obligated redeemable preferred securities of a subsidiary
trust holding solely the Junior Subordinated Debentures (Trust Preferred
Securities) issued by Sea Pines Associates, Inc. Holders of approximately 56%
of the preferred stock exchanged their shares for Common Stock. Holders of
approximately 26% of the preferred stock exchanged their shares for the new
Trust Preferred Security. Holders of approximately 18% of the Series A
Preferred Stock did not exchange their shares.

In conjunction with the Exchange Offer, the Company declared a cash payment of
$0.722 per share to be paid only to holders of record of Series A Preferred
Stock who exchanged shares of Series A Preferred Stock in the Exchange Offer.
This cash payment was paid in four approximately equal quarterly installments
commencing in April 2000. In addition, a deemed dividend of $1,733,000 was
recorded as a reduction to retained earnings.

The Company incurred approximately $294,000 in professional fees and other
costs relating to this transaction. Costs of $202,000 were expensed in 2000
relating to the Exchange Offer. The remaining costs of $92,000 were
capitalized as deferred financing costs and are being amortized over the
30-year life of the Trust Preferred Securities.

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 on or after January 31, 2003 as specified
in the indenture agreement. The Trust Preferred Securities are subordinate in
right of payment to all senior debt of the Company.

Stock Purchase Rights Plan

On August 23, 1993, the Companys Board of Directors approved a Stock Purchase
Rights Plan (Plan) and declared a dividend distribution of one right
(Right) for each share of the Companys outstanding common stock. Each Right
entitles a shareholder to purchase one one-thousandth of a share of Series B
junior cumulative preferred stock at a price of $0.50 per Right, subject to
adjustment.

F-20



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

7. Shareholders Equity (continued)

Stock Purchase Rights Plan (continued)

The Rights become exercisable after any person or group of affiliated or
associated persons (an Acquirer) acquires 20% percent or more of the
Companys outstanding common stock or commences a tender offer that would
result in the Acquirer owning 20% or more of the Companys outstanding common
stock or an Acquirer has been designated an Adverse Person, as such term is
defined in the Plan. The Plan was amended in connection with the Exchange
Offer allowing the acquisition of 20% or more of the Companys outstanding
common stock as a result of the shares acquired in the Exchange Offer. In the
event the Rights become exercisable, a Right will entitle the holder to receive
shares of the Companys common stock having a value equal to twice the exercise
price of the Right. In the event that the Company is acquired in a merger or
other business combination or sale of 50% or more of its assets or earning
power, a Right will entitle the holder to receive shares of the surviving
companys common stock having a market value equal to twice the exercise price
of the Right. The Board of Directors has the flexibility to lower the 20%
threshold to not less than 10% under certain circumstances.

In general, the Rights may be redeemed by the Company at $0.01 per Right at
anytime before certain events occur. One Right is attached to and trades with
each share of common stock. The Rights will not trade separately unless they
become exercisable. All Rights expire on August 23, 2003.

F-21



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

8. Commitments

Rent expense aggregated approximately $1,174,000, $1,203,000 and $982,000 for
the years ended October 31, 2002, 2001 and 2000, respectively. Operating
leases relate primarily to office space and equipment. Minimum annual rental
commitments remaining at October 31, 2002, under non-cancelable operating
leases with original terms of at least one year are as follows (in thousands of
dollars):

|                       |            |   |       |     | 
|---------------------- | ---------- | - | ----- | --- | 
|Year ending October 31
|
|                       | 2003       |   | $     | 928 | 
|                       | 2004       |   |       | 470 | 
|                       | 2005       |   |       | 294 | 
|                       | 2006       |   |       | 123 | 
|                       | 2007       |   |       | 82  | 
|                       | Thereafter |   |       | 566 | 
|                       |            |   |       |    
|Total                  |            | $ | 2,463 |    
|                       |            |   |       |    

In 1993, the Company made a commitment to donate approximately 404 acres of a
wildlife preserve owned by the Company to a not-for-profit organization on
Hilton Head Island, South Carolina. As of October 31, 2002 approximately 90 of
the 404 acres have been donated and title transferred. The remaining 314 acres
have been leased to the same not-for-profit organization for a nominal amount.

9. Contingencies

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

10. Employee Savings Plan

Effective January 1, 1989, the Company adopted a 401(k) defined contribution
plan for all eligible employees with a minimum of one year of service and who
meet certain age requirements, as defined. The Company matches 50% of the
first 6% of the participants compensation. The Companys contributions to the
plan were approximately $132,000, $156,000 and $148,000 for the years ended
October 31, 2002, 2001 and 2000, respectively.

F-22



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

11. Stock Compensation Plan and Deferred Issuance Plan

Director Stock Compensation Plan

Effective October 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 directors for service
to the Company and thereby foster increased stock ownership by the directors.
The plan has reserved 50,000 shares for issuance pursuant to future grants. In
March 2002, 14,000 shares were issued, at a fair market value of $6.00 per
share. The Company recorded $84,000 as deferred compensation at the time the
stock was issued and that amount is being amortized over the directors
12-month terms. In March 2001, 14,000 shares were issued, at a fair market
value of $4.50 per share. The Company recorded $63,000 as deferred
compensation at the time the stock was issued and that amount was amortized
over the directors 12-month terms.

Deferred Issuance Stock Plan

Effective October 30, 2000, the Company established a deferred issuance stock
plan. The purpose of the plan is to optimize the profitability and growth of
the Company through long-term incentives, which link the personal interest of
participants to those of the Companys stockholders. The Company has 180,000
shares of common stock authorized for issuance to eligible employees under the
plan. Deferred stock awards will be granted to key employees. Generally
common stock of the Company will be issued to the participant on the fifth
anniversary of the date the award is granted. On January 2, 2002, the Company
awarded 24,300 deferred shares, at a fair market value of $5.00 per share. On
June 1, 2001, the Company awarded 32,300 deferred shares, at a fair market
value of $4.75 per share. For the years ended October 31, 2002 and 2001, the
Company recorded $47,974 and $12,785, respectively, of stock compensation
expense amortization.

12. Property Tax Accrual

The Company is involved in an administrative law proceeding involving the
valuation of the three golf courses owned by the Company for property tax
purposes. The Company had accrued its property tax expense based on the
valuation originally assessed for these properties. During the third quarter
2002, the court issued a final order and decision, which will ultimately lower
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 is
included as a reduction to general and administrative expenses.

F-23



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

12. Property Tax Accrual (continued)

Based on the court ruling, the Company is entitled to receive a refund of
property taxes paid of an additional $304,000 plus accrued interest. This
amount will be reflected in earnings when this refund has been received.

13. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of operations for the years
ended October 31, 2002 and 2001:

|                                                               |  |               |        |        |  |       |        |        |  |   |        |  |  |   |        |  
|-------------------------------------------------------------- |  | ------------- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ |  |  | - | ------ | -
|                                                               |  | 2002 Quarters
|                                                               |  |              
|                                                               |  | First         |        | Second |  | Third |        | Fourth
|                                                               |  |               |        |        |  |       |        |       
|Revenues                                                       |  | $             | 6,537  |        |  | $     | 14,085 |        |  | $ | 18,038 |  |  | $ | 12,482 |  
|Cost of revenues                                               |  | $             | 5,526  |        |  | $     | 8,796  |        |  | $ | 12,593 |  |  | $ | 9,348  |  
|Net income (loss)                                              |  | $             | (1,063 | )      |  | $     | 1,078  |        |  | $ | 695    |  |  | $ | (513   | )
|Earnings per common share
Net income (loss), basic and diluted |  | $             | (0.31  | )      |  | $     | 0.29   |        |  | $ | 0.18   |  |  | $ | (0.15  | )

|                                                               |  |               |        |        |  |       |        |        |  |   |        |  |  |   |        |  
|-------------------------------------------------------------- |  | ------------- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ |  |  | - | ------ | -
|                                                               |  | 2001 Quarters
|                                                               |  |              
|                                                               |  | First         |        | Second |  | Third |        | Fourth
|                                                               |  |               |        |        |  |       |        |       
|Revenues                                                       |  | $             | 7,790  |        |  | $     | 14,259 |        |  | $ | 16,813 |  |  | $ | 11,482 |  
|Cost of revenues                                               |  | $             | 6,926  |        |  | $     | 9,285  |        |  | $ | 11,776 |  |  | $ | 8,639  |  
|Net income (loss)                                              |  | $             | (2,250 | )      |  | $     | 662    |        |  | $ | 432    |  |  | $ | (1,518 | )
|Earnings per common share
Net income (loss), basic and diluted |  | $             | (0.65  | )      |  | $     | 0.18   |        |  | $ | 0.11   |  |  | $ | (0.44  | )

14. Business Segment Information

The Company has two reportable business segments. The Companys reportable
segments are organized by the type of operations and for the years ended
October 31, 2002, 2001 and 2000 were: (1) resort activities, including home
and villa 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, South

F-24



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##### 



Sea Pines Associates, Inc.

Notes to Consolidated Financial Statements (continued)

14. Business Segment Information (continued)

Carolina, area. The Company evaluates performance and allocates resources
based on earnings before interest, depreciation and other non-cash items. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies (Note 1). All intercompany
transactions between segments have been eliminated upon consolidation.

Segment information as of and for the years ended October 31, 2002, 2001 and 2000
are as follows (in thousands of dollars):

|                                           |                       |   |                       |        |      |   |        |        |   |   |        |        |  
|------------------------------------------ | --------------------- | - | --------------------- | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                           |                       |   | Year ended October 31
|                                           |                       |   |                      
|                                           |                       |   | 2002                  |        | 2001 |   | 2000  
|                                           |                       |   |                       |        |      |   |       
|Revenues:                                  |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           | Resort                |   | $                     | 34,892 |      |   | $      | 33,734 |   |   | $      | 29,670 |  
|                                           | Real estate brokerage |   |                       | 16,250 |      |   |        | 16,610 |   |   |        | 19,169 |  
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           |                       |   | 51,142                |        |      |   | 50,344 |        |   |   | 48,839 |       
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|Cost of revenues:                          |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           | Resort                |   |                       | 24,687 |      |   |        | 24,402 |   |   |        | 23,356 |  
|                                           | Real estate brokerage |   |                       | 11,576 |      |   |        | 12,224 |   |   |        | 13,993 |  
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           |                       |   | 36,263                |        |      |   | 36,626 |        |   |   | 37,349 |       
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|Interest expense:                          |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           | Resort                |   |                       | 2,392  |      |   |        | 2,771  |   |   |        | 1,426  |  
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           |                       |   | 2,392                 |        |      |   | 2,771  |        |   |   | 1,426  |       
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|Depreciation and amortization expense:     |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           | Resort                |   |                       | 2,521  |      |   |        | 2,438  |   |   |        | 1,539  |  
|                                           | Real estate brokerage |   |                       | 68     |      |   |        | 69     |   |   |        | 58     |  
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           |                       |   | 2,589                 |        |      |   | 2,507  |        |   |   | 1,597  |       
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|Segment income (loss) before income taxes: |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           | Resort                |   |                       | (1,080 | )    |   |        | (3,723 | ) |   |        | (1,931 | )
|                                           | Real estate brokerage |   |                       | 1,320  |      |   |        | 619    |   |   |        | 1,444  |  
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           |                       |   | 240                   |        |      |   | (3,104 | )      |   |   | (487   | )     
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|Identifiable assets:                       |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           | Resort                |   |                       | 51,859 |      |   |        | 54,016 |   |   |        | 53,905 |  
|                                           | Real estate brokerage |   |                       | 2,652  |      |   |        | 1,156  |   |   |        | 3,089  |  
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       
|                                           |                       | $ | 54,511                |        |      | $ | 55,172 |        |   | $ | 56,994 |       
|                                           |                       |   |                       |        |      |   |        |        |   |   |        |       

F-25



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##### 



REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Sea Pines Associates, Inc.

We have audited the consolidated financial statements of Sea Pines Associates,
Inc. as of October 31, 2002 and 2001, and for each of the three years in the
period ended October 31, 2002, and have issued our report thereon dated
December 6, 2002 (included elsewhere in this Annual Report on Form 10-K). Our
audits also included the financial statement schedule in item 15 of this Annual
Report on Form 10-K. This schedule is the responsibility of the Companys
management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.



| | /s/ Ernst & Young LLP
| | ---------------------

Atlanta, Georgia
December 6, 2002

F-26





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##### 



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

Sea Pines Associates, Inc.

October 31, 2002

|                             |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |   |         |         | 
|---------------------------- | ------------------------------ | ------------------------------------------- | ----- | ------------------ | ---------- | -------- | --------------------- | --------- | ----------- | ------- | -------------- | - | ------ | ------ |  | - | ------- | ------- | 
|COL. A                       |                                | COL. B                                      |       | COL. C             |            | COL. D.  |                       | COL. E   
|                             |                                |                                             |       |                    |            |          |                       |          
|                             |                                |                                             |       |                    |            |          |                       |           | Additions   |         |                |   |        |        |  |   |        
|                             |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |   |        
|                             |                                |                                             |       |                    | Balance at |          | Charged (Released) to |           | Deductions |         | Balance at End
|Description                  |                                | Beginning of Period                         |       | Costs and Expenses |            | Describe |                       | of Period
|                             |                                |                                             |       |                    |            |          |                       |          
|Year Ended October 31, 2002: |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  
|                             | Deducted from assets
accounts: |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |   |        
|                             |                                | Allowance for
doubtful accounts             |       | $                  | 30,000     |          |                       | $         | 94,000      | (3)     |                | $ | 9,000  | (1)    |  | $ | 115,000 |        
|                             |                                | Valuation allowance
for deferred tax
assets |       |                    | 730,000    |          |                       |           | (44,000     | )       |                |   |       |        |  |   | 686,000 |        
|                             |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  
|                             |                                |                                             | Total |                    | $          | 760,000  |                       |           | $           | 50,000  |                |   | $      | 9,000  |  |   | $       | 801,000 | 
|                             |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  
|Year Ended October 31, 2001: |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  
|                             | Deducted from asset
accounts:  |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |   |        
|                             |                                | Allowance for
doubtful accounts             |       | $                  | 18,000     |          |                       | $         | 22,000      |         |                | $ | 10,000 | (1)    |  | $ | 30,000  |        
|                             |                                | Valuation allowance
for deferred tax
assets |       |                    | 23,000     |          |                       |           | 707,000     | (2)     |                |   |       |        |  |   | 730,000 |        
|                             |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  
|                             |                                |                                             | Total |                    | $          | 41,000   |                       |           | $           | 729,000 |                |   | $      | 10,000 |  |   | $       | 760,000 | 
|                             |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  
|Year Ended October 31, 2000: |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  
|                             | Deducted from asset
accounts:  |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |   |        
|                             |                                | Allowance for
doubtful accounts             |       | $                  | 41,000     |          |                       | $         | 5,000       |         |                | $ | 28,000 | (1)    |  | $ | 18,000  |        
|                             |                                | Valuation allowance
for deferred tax
assets |       |                    | 23,000     |          |                       |           |            |         |                |   |       |        |  |   | 23,000  |        
|                             |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  
|                             |                                |                                             | Total |                    | $          | 64,000   |                       |           | $           | 5,000   |                |   | $      | 28,000 |  |   | $       | 41,000  | 
|                             |                                |                                             |       |                    |            |          |                       |           |             |         |                |   |        |        |  |  



|(1) |  | Uncollectible accounts written off, net of recoveries.                                                                                                                                                 
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The significant increase in the year ended October 31, 2001 is due to
the Companys review of its estimate of realization of deferred
tax assets, primarily related to the loss on interest rate swaps.
|   
|(3) |  | The significant increase in the year ended October 31, 2002 is due to
the Companys reserve for one significant customer that declared
bankruptcy in the year.                                         

F-27