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Exhibit 13.1

PORTIONS OF 2005 ANNUAL REPORT TO SHAREHOLDERS



SELECTED FINANCIAL DATA



You should read the following selected financial data together with our consolidated financial statements and the related notes appearing elsewhere in this report and the Managements Discussion and Analysis of Financial Condition and Results of Operations section and other financial data included in this report.



Blue Ridge Real Estate Company and Subsidiaries

and Big Boulder Corporation and Subsidiaries

COMBINED SUMMARY OF SELECTED FINANCIAL DATA



|                                                       |             |             |             |             |                      
|------------------------------------------------------ | ----------- | ----------- | ----------- | ----------- | ---------------------
|                                                       | 10/31/05    | 10/31/04    | 10/31/03    | 10/31/02    | 7 Mos. ended 10/31/01
|Revenues from continuing operations                    | $13,061,921 | $7,633,223  | $7,947,534  | $7,082,823  | $3,859,025           
|Net income (loss)                                      | $1,932,000  | $6,246,107  | $ (879,137) | $  686,758  | $ (804,422)          
|Net income (loss) per combined share                   | $0.90       | $3.26       | ($0.45)     | $0.36       | ($0.42)              
|Cash dividends per combined share                      | 0           | 0           | 0           | 0           | 0                    
|Weighted average number of combined shares outstanding | 2,385,024   | 1,916,130   | 1,916,130   | 1,916,431   | 1,917,858            
|Total assets                                           | $57,116,743 | $45,461,969 | $27,960,410 | $24,645,828 | $22,926,443          
|Long-term debt and capital lease obligations           | $13,149,742 | $15,881,808 | $10,990,756 | $ 8,049,805 | $ 7,670,240          
|Shareholders' equity                                   | $33,663,614 | $15,769,866 | $ 9,523,759 | $10,202,521 | $ 9,526,263          







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FINANCIAL SECTION

Page



Quarterly Financial Information (Unaudited)

3

Stock and Dividend Information

4

Managements Discussion and Analysis of Financial Condition and Results of Operations

5

Combined Balance Sheets

14

Combined Statements of Operations

15

Combined Statements of Changes in Shareholders Equity

17

Combined Statements of Cash Flows

18

Notes to Consolidated Financial Statements

19

Report of Independent Registered Public Accounting Firm

38







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QUARTERLY FINANCIAL INFORMATION (Unaudited)



The results of operations for each of the quarters in the last two years are presented below.



|                                                                                                                 |            |            |            |            |            
|---------------------------------------------------------------------------------------------------------------- | ---------- | ---------- | ---------- | ---------- | -----------
|                                                                                                                 | 1st        | 2nd        | 3rd        | 4th        | Total      
|Year ended 10/31/05                                                                                              |            |            |            |            |            
|Operating revenues                                                                                               | $5,132,390 | $2,581,105 | $2,478,126 | $2,870,300 | $13,061,921
|Operating profit (loss)                                                                                          | $2,619,467 | $87,734    | $56,160    | ($62,312)  | $2,701,049 
|Net income (loss) from discontinued
   operations                                                                | $439,090   | $1,619,487 | ($917,765) | ($704,691) | $436,121   
|Net income (loss) before cumulative
   effect of change in accounting principle                                  | $1,751,846 | $1,198,280 | ($784,316) | ($233,810) | $1,932,000 
|Net income (loss)                                                                                                | $1,751,846 | $1,198,280 | ($784,316) | ($233,810) | $1,932,000 
|Net income (loss) before discontinued
   operations and cumulative effect per
   weighted average combined share | $0.68      | ($0.22)    | $0.06      | $0.18      | $0.70      
|Net income (loss) per weighted average
   combined share                                                         | $0.91      | $0.61      | ($0.48)    | ($0.14)    | $0.90      





|                                                                                                                 |            |            |            |              |           
|---------------------------------------------------------------------------------------------------------------- | ---------- | ---------- | ---------- | ------------ | ----------
|                                                                                                                 | 1st        | 2nd        | 3rd        | 4th          | Total     
|Year ended 10/31/04                                                                                              |            |            |            |              |           
|Operating revenues                                                                                               | $1,741,854 | $1,136,884 | $2,583,210 | $2,171,275   | $7,633,223
|Operating profit (loss)                                                                                          | $383,156   | ($222,606) | ($711,202) | ($257,430)   | ($808,082)
|Net income (loss) from discontinued
   operations                                                                | $864,845   | $9,164,987 | ($936,577) | ($1,047,763) | $8,045,492
|Net income (loss) before cumulative
   effect of change in accounting principle                                  | $955,174   | $8,243,787 | ($794,315) | ($652,761)   | $7,751,885
|Net income (loss)                                                                                                | $127,016   | $7,566,167 | ($794,315) | ($652,761)   | $6,246,107
|Net income (loss) before discontinued
   operations and cumulative effect per
   weighted average combined share | ($0.38)    | ($0.47)    | $0.07      | $0.63        | ($0.15)   
|Net income (loss) per weighted average
   combined share                                                         | $0.07      | $3.94      | ($0.41)    | ($0.34)      | $3.26     



The quarterly results of operations for Fiscal 2005 and 2004 reflect the cyclical nature of the Companies' business since land dispositions occur sporadically and do not follow any pattern during the fiscal year.  Reclassifications in operating revenues and income (loss) from continuing operations in the quarters for years ended October 31, 2005 and 2004 reflect ski operations being classified as discontinued operations, as well as the sale of Dreshertown Plaza Shopping Center in Fiscal 2004.







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STOCK AND DIVIDEND INFORMATION



Market Price of Common Stock



Our common stock is quoted on the OTC Bulletin Board under the symbol BLRGZ.  There has been a limited and sporadic trading market for our common stock.  However, our management does not believe such limited activity constitutes an established public trading market.  As of January 27, 2006, we had 559 holders of record of our common stock.



The following sets forth the high asked and low bid price quotations as reported on the monthly statistical reports of the National Association of Securities Dealers, Inc. for Fiscal Years 2005 and 2004. No dividends were paid on common stock in either period.



Fiscal Year 2005

HIGH

LOW

ASKED

BID

First Quarter

36.10

27.50

Second Quarter

41.00

34.00

Third Quarter

45.00

37.75

Fourth Quarter

45.00

37.75



Fiscal Year 2004

HIGH

LOW

ASKED

BID

First Quarter

16.750

13.250

Second Quarter

21.000

13.900

Third Quarter

27.250

20.750

Fourth Quarter

29.000

27.000



The reported quotations represent prices between dealers, do not reflect retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions.



Dividend Policy



We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance our operations and expand our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, operating results, capital requirements, and other factors the board of directors deems relevant.







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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview



Our principal business is the management and development of our real estate and rental properties.  Also significant to our operations is the development of drive-to and destination resort communities in and around our two ski areas, Jack Frost Mountain and Big Boulder.



Since the completion of our last large-scale real estate development project in the 1980s, which established our four resort communities, management was primarily focused on the promotion and maintenance of our two ski areas, our summer operations and the resort communities. Over the past four years, due to market trends and historically lower interest rates, management has refocused its attention on the further development of our real estate holdings.



For the fiscal year ended October 31, 2006, or Fiscal 2006, management intends to continue selective sales and purchases of land, some of which sales and purchases may be treated as section 1031 tax deferred exchanges.  We are also taking various steps to attract new land sale customers and home buyers; for example, we are offering financing opportunities for the purchase of land in and around our resort areas and we have begun construction of Phase I of the Laurelwoods Community of single family homes.  Additionally, we are moving forward with plans to develop the lands near both ski resorts with single and multi-family homes.  This is part of a comprehensive plan for our core land development in and around our two ski areas.  We will also continue to generate timbering revenues from selective harvesting of timber.



We own 17,245 acres of land in Northeastern Pennsylvania.  Of these land holdings, we have designated 5,124 acres as held for development and are moving forward with municipal approvals.  Based on a market study that we commissioned earlier this year, management believes that our primary focus should be on single and multi-family dwellings in proximity to our ski area.  It is expected that all of our planned developments will result in approximately 3,700 lots or units, some of which will be subdivided and sold as parcels of land, while others will be developed into single and multi-family housing.  We are in the process of seeking municipal approval for a community surrounding a new 18-hole golf course at Jack Frost Mountain that is scheduled to open during the summer of 2006.  This community is expected to include approximately 1,100 homes and will be comprised of approximately 40% single family homes and 60% multi-family units, as well as golf club amenities and the necessary infrastructure. We also expect that certain subdivisions may be sold outright in phases to nationally-recognized land developers in order to facilitate the market for housing and to reduce the inherent risk associated with any land development.



On April 1, 2005, we closed one of our summer recreational centers, Splatter Paintball Games, which resulted in the recognition of an impairment loss in the second quarter of Fiscal 2005.  The decision to close the Splatter Paintball Games was made because the playing fields used for the paintball games were being encroached upon by the construction of the golf course.



Recent Developments



On August 8, 2005, we entered into an agreement with Robert C. Young, Inc. in the amount of $2,427,291 to provide equipment, supplies and personnel for infrastructure improvements for Phase II of the Laurelwoods II residential development that is currently under construction on a parcel of property located at Big Boulder ski area in Lake Harmony, Pennsylvania. Construction of the infrastructure improvements are expected to be completed in the spring.



We previously operated in four business segments, which consisted of: Ski Operations, Real Estate Management/Rental Operations, Summer Recreational Operations and Land Resource Management.  Due to the lease of our two ski areas to JFBB Ski Areas, Inc. in December 2005, our Ski Operations segment has been discontinued.  By leasing the ski facilities to a third party operator, management expects to focus additional resources on real estate







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development at our current and proposed resort communities.  Going forward, the revenues and expenses attributed to the leasing of the ski areas will be included in the Real Estate Management/Rental Operations segment.  Therefore, we now currently operate in three business segments, which consist of the Real Estate Management/Rental Operations, Summer Recreational Operations and Land Resource Management segments.



On January 27, 2006, we entered into an agreement with Popple Construction Company, Inc. for infrastructure improvements of a residential housing development at Boulder Lake Village, located in Lake Harmony Pennsylvania.  The anticipated cost for the infrastructure improvements to Boulder Lake Village is approximately $2,250,000.



Critical Accounting Policies and Significant Judgments and Estimates



We have identified the most critical accounting policies upon which our financial status depends.  The critical policies and estimates were determined by considering accounting policies that involve the most complex or subjective decisions or assessments.  The most critical accounting policies identified relate to net deferred tax assets and liabilities, and the valuation of land development costs and long-lived assets.



Revenues are derived from a wide variety of sources, including sales of real estate, management of investment properties, home construction, property management services, timbering and leasing activities.  Revenues are recognized as services are performed.



Timbering revenues from stumpage contracts are recognized at the time a stumpage contract is signed in accordance with Staff Accounting Bulleting No. 104  Revenue Recognition, (SAB 104). At the time a stumpage contract is signed, the risk of ownership is passed to the buyer at a fixed, determinable cost.  Reasonable assurance of collectibility is determined by the date of signing, and at that time, the obligations of the Companies are satisfied.  Therefore, full accrual recognition at the time of contract execution is appropriate under SAB 104 guidance.



Managements estimate of deferred tax assets and liabilities is primarily based on the difference between the tax basis and financial reporting basis of depreciable assets, like-kind exchanges of assets, accruals and deferred revenues.  Valuation allowances are established, when necessary to reduce tax assets to the amount expected to be realized.



We capitalize as land and land development costs, the original acquisition cost, direct construction and development costs, property taxes, interest incurred on costs related to land under development and other related costs (engineering, surveying, landscaping, etc.) until the property reaches its intended use.  The cost of sales for individual parcels of real estate or condominium units within a project is determined using the relative sales value method.  Selling expenses are charged against income in the period incurred.



Long-lived assets, namely properties, is based on historical cost. Depreciation and amortization is provided principally using the straight-line half-year method over the estimated useful life of the class of property. Upon sale or retirement of depreciable property, the cost and related accumulated depreciation are removed from the related accounts, and resulting gains or losses are reflected in income.



Interest, real estate taxes, and insurance costs, including those costs associated with holding unimproved land, are normally charged to expense as incurred. Interest cost incurred during construction of facilities is capitalized as part of the cost of such facilities. Maintenance and repairs are charged to expense, and major renewals and betterments are added to property accounts.



Impairment losses are recognized in operating income, as they are determined. We review our long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In that event, we calculate the expected future net cash flows to be generated by the asset. If those net future cash flows are less than the carrying value of the asset, an impairment loss is recognized in operating income. The impairment loss is the difference between the carrying value and the fair value of the asset.









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Deferred revenue consists of dues, rents and deposits on land or home sales. Dues that are not yet earned consist of rents related to our commercial properties that have been paid in advance, and dues related to memberships in the Companies hunting and fishing clubs paid in advance. We recognize revenue related to the hunting and fishing clubs over the one-year period that the dues cover.  We recognize revenue related to the fishing club over a 5 month period, May through September.  Deposits are required on land and home sales.



We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.





Results of Operations

FISCAL 2005 VERSUS FISCAL 2004



Net Income



For fiscal year ended October 31, 2005, (Fiscal 2005), we reported net income of $1,932,000 or $.0.90 per combined share as compared with a net income of $6,246,107, or $3.26 per combined share for fiscal year ended October 31, 2004 (Fiscal 2004).



Revenues



Combined revenue of $13,061,921 represents an increase of $5,428,698, or 71% compared to Fiscal 2004.  Real Estate Management Operations / Rental Operations revenue increased $1,421,147, or 33% when compared to Fiscal 2004. Summer Recreation Management Operations decreased $1,169,735, or 60%.  Land Resource Management revenue increased $5,177,286.



Real Estate Management/Rental Operations



The Real Estate Management Operations / Rental Operations had revenue of $5,788,904 in Fiscal 2005 as compared to $4,367,757 in Fiscal 2004, which resulted in an increase of $1,421,147 that was primarily attributed to an increase in the rent of investment properties. This increase in revenue was mainly from two newly acquired shopping centers in Fiscal 2004.  The Oxbridge Square shopping center's revenue was $1,379,031 for Fiscal 2005 as compared to $455,313 for Fiscal 2004 for an increase of $923,713 and the Coursey Commons shopping center's revenue was $970,791 for Fiscal 2005 as compared to $329,986 for Fiscal 2004 for an increase of $640,805.  The increase in revenue for the shopping centers is due to Fiscal 2005 being a 12 month period of revenue recognition and Fiscal 2004 was a five month period as the shopping centers were purchased in June 2004.



Summer Recreation Operations



In Fiscal 2005, Summer Recreation Operations had revenue of $744,288 as compared to $1,944,023 for Fiscal 2004, which represents a decrease of $1,169,735, or 60%.  This decrease is mainly attributed to the closing of the Traxx Motocross Park and the Fernridge Campground in October 2004 and the closing of the Splatter Paintball in March 2005.



Land Resource Management



In Fiscal 2005, Land Resource Management had revenue of $6,428,729 as compared to $1,321,443 for Fiscal 2004, which resulted in an increase of $5,177,286.  In Fiscal 2005, 2,470 acres of land were sold generating $4,802,976 in revenue with a basis of $135,466 as compared to Fiscal 2004 in which 104 acres of land were sold generating revenue of $994,542 with a basis of $6,514. This results in an increase of $3,808,434 for Fiscal 2005 as compared to Fiscal 2004. Real Estate Development revenue in Fiscal 2005 was $1,014,271 as compared to no revenue recognized for Fiscal 2004. This represents the sale of three single family homes in the Laurelwoods residential community.  To date approximately 5% of our 17,269 acres have been marked for timbering.  A forester has been hired to generate a long-term plan of managed timbering which pays specific attention to protecting the environment and retaining the value of the land.  In







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Fiscal 2005 timber sales were $681,482 as compared to Fiscal 2004 which generated $326,900 of revenue, an increase of $354,582 or 108%.



Operating Costs



Real Estate Management/Rental Operations



Operating costs associated with Real Estate Management Operations / Rental Operations for Fiscal 2005 were $4,608,014 as compared to $3,735,890 for Fiscal 2004, which represents an increase of $872,124, or 23%.The increase was mainly attributable to the expenses associated with the two new shopping centers acquired in June 2004. The Oxbridge Square Shopping Center had expenses of $764,518 for Fiscal 2005 as compared to $329,865 for Fiscal 2004 for an increase of $434,653, and the Coursey Commons Shopping Center had expenses of $850,315 for Fiscal 2005 as compared to $300,775 for Fiscal 2004 for an increase of $549,540. The increase in operating costs for the two shopping centers is due to Fiscal 2005 being a 12 month period where as Fiscal 2004 was a five month period as the shopping centers were purchased in June 2004.



Summer Recreation Operations



Operating costs associated with Summer Recreation Operations for Fiscal 2005 were $683,458 as compared with $1,660,939 for Fiscal 2004, which represents a decrease of $977,481, or 59%. This decrease was due to the closing of the Traxx Motocross Park and the Fernridge Campground in October 2004 and the closing of Splatter Paintball in March 2005.



Land Resource Management



Operating costs associated with Land Resource Management for Fiscal 2005 were $3,366,788 as compared with $1,125,127 for Fiscal 2004, which represents an increase of $2,241,661. This increase is primarily attributable to an increase in construction and related costs of $1,683,137 in Fiscal 2005 as compared to no costs recognized in Fiscal 2004. The majority of these costs were for cost of goods sold of $762,706, or 45%, salaries and wages of $374,599, or 22% and consulting fees of $203,039, or 12% related to the sale of 3 single family homes in the Laurelwoods development. The cost of land and buildings sold increased $835,231 relating to the sale of six investment properties in the land sales division.



Asset Impairment Loss



The asset impairment loss in Fiscal 2005 of $149,798 is the result of the closing of Splatter Paintball. The Splatter Paintball facility was closed due to the playing fields encroaching on the site of the new 18 hole championship golf course.



General and Administration



General and Administration costs for Fiscal 2005 were $1,552,814, as compared with $898,315 for Fiscal 2004, which represents an increase of $654,499, or 73%. This increase is attributable to $83,313 in Pennsylvania and Louisiana Capital Stock Tax expensed in Fiscal 2005, increased consulting fees of $193,000 and increased  legal and audit fees of  $81,600 resulting from the implementation of the Sarbanes Oxley internal control compliance act.  $168,000 in donations were made in Fiscal 2005 to various local municipalities.









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Other Income (Expense)



Interest and Other Income was $139,738 in Fiscal 2005, as compared to $1,076,964 in Fiscal 2004, a decrease of $936,956, or 87%. This decrease is primarily attributable to the sale of our four communication towers in Fiscal 2004.



Interest expense for Fiscal 2005 was $893,908, as compared to $458,489 for Fiscal 2004, which represents an increase of $435,419, or 95%. This increase is attributable to the additional interest incurred on the mortgages resulting from the purchase of the Oxbridge Square and Coursey Commons shopping centers in June of Fiscal 2004.  The Oxbridge Square shopping centers interest expense in Fiscal 2005 was $293,429, as compared to $123,469 in Fiscal 2004, for an increase of $168,960, or 137%. The Coursey Commons shopping centers interest expense in Fiscal 2005 was $433,476, as compared to $159,199 in Fiscal 2004, for an increase of $274,277 or 172%.



Discontinued Operations



Due to managements decision to enter into a lease agreement subsequent to Fiscal 2005 year end, in which the Companies have leased the two ski areas to a third party operator, the results of operations of the ski operations segment for Fiscal 2005, 2004 and 2003 are reported as discontinued operations.  Future cash flows and operating results of the Ski Operations segment will no longer be reported.  Cash flows resulting from the lease commitment are expected to be reported in the Real Estate Management / Rental Operations segment.



The net income from discontinued operations for ski operations in Fiscal 2005 was $436,121 versus a net loss of ($221,591) in Fiscal 2004.  This was due to a strong Presidents Day weekend and favorable weather conditions through the end of the ski season, which rendered 11 additional days of the ski season in Fiscal 2005.



Also included in discontinued operations in Fiscal 2004 are the results of real estate rental operations stemming from the sale of the Dreshertown Plaza Shopping Center which reported income from operations of $418,216 and a gain on the sale net of tax amounting to $7,848,867.  No activity was incurred for Dreshertown Plaza Shopping Center in Fiscal 2005.



Tax Rate



The effective Tax Rate for Fiscal 2005 was 24% and Fiscal 2004 was 34%.  The decrease in the effective tax rate was due to managements decision to sell outright six investment properties that were previously purchased in tax deferred 1031 exchanges and recorded for tax purposes at a lower basis.  Therefore, upon their sale, a significant taxable gain was recognized as currently taxable.  This resulted in a significant unexpected utilization of state net operating loss carryforwards.  Valuation allowances were provided for these state carryforwards at October 31, 2004.  The reduction of this valuation allowance reduced the income tax expense and effective tax rate.









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Results of Operations

FISCAL 2004 VERSUS FISCAL 2003



Net income



For fiscal year ended October 31, 2004, (Fiscal 2004), we reported net income of $6,246,107 or $3.26 per combined share  as compared with a net loss of $(879,317) or $(.45) per combined share for fiscal year ended October 31, 2003 (Fiscal 2003).



Revenues



Combined revenue of $7,633,223 represents a decrease of $314,311 or 4% when compared to Fiscal 2003.  Real Estate Management Operations / Rental Operations revenue increased $917,854 or 27% when compared to Fiscal 2003.  Summer Recreation Management Operations increased $67,299 or 3%.  Land Resource Management decreased $1,299,464.



Real Estate Management/Rental Operations



The Real Estate Management Operations / Rental Operations had revenue of $4,367,757 in Fiscal 2004 as compared to $3,449,903 in Fiscal 2003, which resulted in an increase of $917,854 that was primarily attributed to an increase in the rent of investment properties. This increase in revenue was mainly from two newly acquired shopping centers in Fiscal 2004 and an increase in commission revenue earned on the resale of homes in our resort communities.  The Oxbridge Square shopping center's revenue was $455,313 and the Coursey Commons shopping center's revenue was $329,986 for Fiscal 2004. Resale of our resort community homes resulted in revenue of $465,301 for Fiscal 2004 as compared to $408,136 for Fiscal 2003, which represents an increase of $57,165 or 14%.



Summer Recreation Operations



In Fiscal 2004, Summer Recreation Operations had revenue of $1,944,023 as compared to $1,876,724 for Fiscal 2003, which represents an increase of $67,299 or 3%.  This increase is mainly attributed to the Irish festival which generated revenue of $120,932 in Fiscal 2004 as compared to $77,247 in Fiscal 2003.  The Lake Club had revenue of $218,895 in Fiscal 2004 as compared to $200,036 in Fiscal 2003, an increase of $18,859 or 9%.  This increase was due to additional club memberships issued.



Land Resource Management



In Fiscal 2004, Land Resource Management had revenue of $1,321,443 as compared to $2,620,907 for Fiscal 2003, which resulted in a decrease of $1,299,464. In Fiscal 2004, 104 acres of land were sold generating $994,542 in revenue with a basis of $6,514 as compared to Fiscal 2003 in which 134 acres of land were sold generating revenue of $1,398,498 with a basis of $9,831. This results in a decrease of $403,956 or 29% for Fiscal 2004 as compared to Fiscal 2003. To date approximately 5% of our 19,739 acres have been marked for timbering.  A forester has been hired to generate a long-term plan of managed timbering which pays specific attention to protecting the environment and retaining the value of the land.  In Fiscal 2004 timber sales were $326,900 as compared to Fiscal 2003 which generated $1,222,420 of revenue, a decrease of $895,520 or 73%.







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Operating Costs



Real Estate Management/Rental Operations



Operating costs associated with Real Estate Management Operations / Rental Operations for Fiscal 2004 were $3,735,890 as compared to $3,081,817 for Fiscal 2003, which represents an increase of $654,073.The increase was mainly attributable to the expenses associated with the two new shopping centers acquired in Fiscal 2004. The Oxbridge Square Shopping Center had expenses of $299,202 and the Coursey Commons Shopping Center had expenses of $207,653 for Fiscal 2004.



Summer Recreation Operations



Operating costs associated with Summer Recreation Operations for Fiscal 2004 were $1,660,939 as compared with $1,738,786 for Fiscal 2003, which represents a decrease of $77,847 or 4%. This decrease was primarily due to a reduction in Splatter paintball supplies and services of $62,953 or 80%.



Land Resource Management



Operating costs associated with Land Resource Management for Fiscal 2004 were $1,125,127 as compared with $585,137 for Fiscal 2003 which represents an increase of $539,990 or 92%. This increase is primarily attributable to an increase in consulting fees of $255,748 or 47% and an increase in the cost of land and buildings sold of $248,436 or 46% relating to the 1031 tax deferred exchanges in the land sales division.



Asset Impairment Loss



The asset impairment loss in Fiscal 2004 of $1,021,034 is the result of closing the Fern Ridge campground and the Traxx Motocross Park. The campground was closed because we were unable to obtain sewage permits. The impairment loss resulting from the closing of the Fern Ridge campground is $452,325. The motocross park was closed because its location is the site for future resort community development at Jack Frost Mountain. The impairment loss resulting from the closing of the Traxx Motocross Park was $568,709.



General Administration



General and Administration costs for Fiscal 2004 were $898,315 as compared with $1,055,746 for Fiscal 2003 which represents a decrease of $157,431 or 15%. This decrease is attributable to $200,900 of compensation recognized under an employee stock plan that was expensed in Fiscal 2003. There was no such compensation expense in Fiscal 2004



Other Income (Expense)



Interest and Other Income was $1,076,964 in Fiscal 2004 as compared to $22,475 in Fiscal 2003, an increase of $1,054,489. This increase is primarily attributable to the sale of our four communication towers in Fiscal 2004.



Interest expense for Fiscal 2004 was $458,489 as compared to $147,304 for Fiscal 2003, which represents an increase of $311,185. This increase is attributable to the mortgages acquired for the residential investment properties ($29,452), and the additional interest incurred on the new mortgages resulting from the purchase of the Oxbridge Square ($124,469) and Coursey Commons ($159,199) shopping centers in Fiscal 2004.



Discontinued Operations

Due to managements decision to enter into a lease agreement subsequent to Fiscal 2005 year end, in which the Companies have leased the two ski areas to a third party operator, the results of operations of the ski operations segment for Fiscal 2004 and 2003 are reported as discontinued operations.







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The net loss from discontinued operations for ski operations in Fiscal 2004 was ($221,591) versus a net loss of ($337,893) in Fiscal 2003.

Also included in discontinued operations in Fiscal 2004 and 2003 are the results of real estate rental operations of the Dreshertown Plaza Shopping Center.  In Fiscal 2004 the operating income related to Dreshertown was $418,216 versus a loss from operations of ($1,445,463) in Fiscal 2003.  This was mainly due to the buyout of the Dreshertown Plaza Shopping Centers management company agreement of approximately $1,972,000.  The Dreshertown Plaza Shopping Center was sold in Fiscal 2004 with a gain on the sale, net of tax, amounting to $7,848,867 and was also included in discontinued operations in Fiscal 2004.

The effective Tax Rate for Fiscal 2004 was 34% and Fiscal 2003 was 40%.

Liquidity and Capital Resources:

The Combined Statement of Cash Flows reflects net cash used in operating activities of $7,051,431 for Fiscal 2005, net cash used by operating activities of $826,949 for the Fiscal 2004 versus net cash provided by operating activities of $245,764 for Fiscal 2003.  The increase in net cash used in operating activities for Fiscal 2005 was primarily the result of increased investment in land development costs.  We anticipate realizing profits on the real estate development over the next several years.

Material non-recurring cash items during the past three years include in Fiscal 2005 the issuance of common stock netting proceeds of $15,100,000, the sale of the communication towers for $1,469,000 in Fiscal 2004, the buyout of the management company for the Dreshertown Plaza shopping center of $1,972,000 in Fiscal 2003 and the exchange of the Dreshertown Plaza shopping center for the Oxbridge Square and the Coursey Commons shopping centers in Fiscal 2004.

Management does not expect the absence of cash flows from discontinued operations to materially affect the Company, as previously cash flows from ski operations were reinvested in capital improvements to the ski areas.

We currently anticipate that the funds needed for future operations and to implement our land development strategy will be satisfied through operating cash, borrowed funds, public offerings or private placements of debt or equity and reinvested profits from completed and sold units or lots. We expect that with respect to land development, future construction will be conducted in phases, with the profits from each phase used to fund additional future construction. Construction is being implemented in phases as to reduce any market risk associated with changing economic conditions.

For the Fiscal year ended October 31, 2005, our major capital expenditures were for infrastructure costs associated with the 23 single unit Laurelwoods Longview Drive residential community at Big Boulder ski area,  the construction of the Jack Frost National Golf Course and the subdivision and permitting cost relating to the Boulder Lake Village 144 unit condominium community.

During the fiscal year ended October 31, 2005, we borrowed against our $6.85 million and $1.0 million lines of credit for a period of twelve months in varying amounts with a maximum of $1,708,912.  During Fiscal 2004, we borrowed against our $3.1 million line of credit for a period of eleven months in varying amounts with a maximum of $2,933,180.  During Fiscal 2003, we borrowed against our $3.1 million line of credit for a period of ten months in varying amounts with a maximum of $1,800,000. The rates of interest are one percentage point less than the Prime Rate on the $6.85 million line, and one half of one percentage point (0.50%) less than the Prime Rate on the $1.0 million line.

|                                   |             |                  |            |           |                  
|---------------------------------- | ----------- | ---------------- | ---------- | --------- | -----------------
|Contractual Obligations:           | Total       | Less than 1 year | 1-3 years  | 4-5 years | More than 5 years
|                                   |             |                  |            |           |                  
|Lines of Credit                    | 0           | 0                | 0          | 0         | 0                
|Long-Term Debt                     | 13,149,742  | 348,962          | 1,212,570  | 468,056   | 11,120,154       
|Purchase Obligations               | 5,961,747   | 5,961,747        | 0          | 0         | 0                
|Pension Contribution Obligations   | 174,007     | 174,007          |            |           |                  
|Other Long-Term Obligations        | 0           | 0                | 0          | 0         | 0                
|                                   |             |                  |            |           |                  
|Total Contractual Cash Obligations | $19,285,496 | $6,484,716       | $1,212,570 | $468,056  | $11,120,154      

Purchase obligations consist of material contracts totaling approximately $10,827,000 with four separate contractors relating to real estate development.  Payments made through October 31, 2005 total approximately $4,865,000.







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Table of Contents



Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is limited primarily to the fluctuating interest rates associated with variable rate indebtedness. At October 31, 2005, we had no outstanding variable rate indebtedness; all outstanding debt is at fixed interest rates.

Exposure to market risk may also exist in our mortgages receivable issued in connection with land sales.  Mortgages receivable are considered fully collectible by management and accordingly, no allowance for loan losses is considered necessary.

New Accounting Pronouncements:

In January 2003, the Financial Accounting Standards Board (FASB) issued FIN No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"), which addresses whether certain types of entities, referred to as variable interest entities ("VIEs"), should be consolidated in a company's financial statements. A VIE is an entity that either: (1) has equity investors that lack certain essential characteristics of a controlling financial interest, including the ability to control the entity, the obligation to absorb the entity's expected losses and the right to receive the entity's expected residual returns, or (2) lacks sufficient equity to finance its own activities without financial support provided by the other entities, which in turn would be expected to absorb at least some of the expected losses of the VIE. An entity should consolidate a VIE if it stands to absorb a majority of the VIE's expected losses or to receive a majority of the VIE's expected residual returns. FIN No. 46 is effective now for new VIE's formed after December 31, 2003. Application of FIN No. 46 for VIE's created prior to January 1, 2004 is required for the first annual period beginning after December 15, 2004. We do not expect the adoption of FIN No. 46 to have a significant impact on our financial position or results of operations.

In December 2004, FASB issued Statement No. 123 revised (SFAS No. 123R), Share-Based Payment. SFAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No.123R replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.SFAS No. 123R will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. We are required to apply SFAS No. 123R as of the first interim or annual reporting period that begins after June 15, 2005 which is the quarter ended January 31, 2006. We expect to recognize compensation expense related to non-vested awards totaling approximately $570,000 over the next 1.6 years using the modified prospective approach.

In December 2004, FASB issued Statement No. 152 (SFAS No. 152), Accounting for Real Estate Time-Sharing Transactions. SFAS No. 152 clarifies the accounting for sales and other transactions involving real estate time-sharing transactions and is effective for financial statements for fiscal years beginning after June 15, 2005. We do not expect the adoption of SFAS No. 152 to have a significant impact on our financial position or results of operations.

Also in December 2004, FASB issued Statement No. 153 (SFAS No. 153), Exchanges of Nonmonetary Assets. SFAS No. 153 eliminates a previous exception from fair value reporting for nonmonetary exchanges of similar productive assets and introduces an exception from fair value reporting for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary change is considered to have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  SFAS No. 153 is applicable to nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the adoption of SFAS No. 153 to have a significant impact on our financial position or results of operations.

In May 2005, FASB issued Statement No. 154 (SFAS No. 154), Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3, which provides guidance on the accounting for and reporting of accounting changes and error corrections.  SFAS No. 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005.  The Companies do not expect the adoption of SFAS No. 154 to have a significant impact on its financial position or results of operations.









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Table of Contents



BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES

COMBINED BALANCE SHEETS

October 31, 2005 and 2004

|                                                                                                                                                                                                               |             |            
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | -----------
|ASSETS                                                                                                                                                                                                         | 10/31/05    | 10/31/04   
|Current Assets:                                                                                                                                                                                                |             |            
|Cash and cash equivalents                                                                                                                                                                                      | $1,833,704  | $89,739    
|Accounts receivable and mortgages receivable                                                                                                                                                                   | 545,751     | 506,993    
|Accounts receivable  - ski tenant                                                                                                                                                                              | 86,982      | 0          
|Inventories                                                                                                                                                                                                    | 0           | 246,394    
|Prepaid expenses and other current assets                                                                                                                                                                      | 722,878     | 833,658    
|Deferred tax asset                                                                                                                                                                                             | 123,000     | 85,000     
|Total current assets                                                                                                                                                                                           | 3,312,315   | 1,761,784  
|Cash held in escrow                                                                                                                                                                                            | 0           | 134,907    
|Mortgages receivable noncurrent                                                                                                                                                                                | 52,452      | 299,986    
|Land and land development costs (5,124 acres per land ledger)                                                                                                                                                  | 17,050,335  | 4,527,937  
|Properties:                                                                                                                                                                                                    |             |            
|Land held for investment, principally unimproved (12,145 and
              14,615, respectively, acres per land ledger)                                                                                        | 6,511,879   | 6,366,791  
|Land improvements, buildings and equipment - ski                                                                                                                                                               | 0           | 39,435,449 
|Land improvements, buildings and equipment - commercial                                                                                                                                                        | 26,628,711  | 30,173,580 
|Land improvements, buildings and equipment                                                                                                                                                                     | 3,119,017   | 1,754,707  
|                                                                                                                                                                                                               | 36,259,607  | 77,730,527 
|Less accumulated depreciation and amortization                                                                                                                                                                 | 8,764,889   | 38,993,172 
|                                                                                                                                                                                                               | 27,494,718  | 38,737,355 
|Assets held to be used                                                                                                                                                                                         | 9,206,923   | 0          
|                                                                                                                                                                                                               | $57,116,743 | $45,461,969
|                                                                                                                                                                                                               |             |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                           | 10/31/05    | 10/31/04   
|Current Liabilities:                                                                                                                                                                                           |             |            
|Notes payable - line of credit                                                                                                                                                                                 | $0          | $1,493,000 
|Notes payable - demand note                                                                                                                                                                                    | 0           | 2,500,000  
|Current installments of long-term debt                                                                                                                                                                         | 348,962     | 766,060    
|Current installments of capital lease obligations                                                                                                                                                              | 0           | 244,686    
|Accounts payable                                                                                                                                                                                               | 1,875,513   | 1,708,615  
|Accrued claims                                                                                                                                                                                                 | 43,170      | 99,282     
|Deferred revenue                                                                                                                                                                                               | 239,206     | 747,638    
|Accrued pension expense                                                                                                                                                                                        | 467,109     | 606,406    
|Amounts due to related parties                                                                                                                                                                                 | 120,836     | 114,168    
|Accrued liabilities                                                                                                                                                                                            | 931,929     | 585,791    
|Total current liabilities                                                                                                                                                                                      | 4,026,725   | 8,865,646  
|Long-term debt, less current installments                                                                                                                                                                      | 12,800,780  | 14,277,503 
|Long-term capital lease obligations, less current installments                                                                                                                                                 | 0           | 593,559    
|Deferred income non-current                                                                                                                                                                                    | 515,631     | 515,631    
|Other non-current liabilities                                                                                                                                                                                  | 493         | 5,764      
|Additional minimum pension liability                                                                                                                                                                           | 91,500      | 0          
|Deferred income taxes                                                                                                                                                                                          | 6,018,000   | 5,434,000  
|Commitments and contingencies                                                                                                                                                                                  |             |            
|Combined shareholders' equity:                                                                                                                                                                                 |             |            
|Capital stock, without par value, stated value $.30 per
     combined share, Blue Ridge and Big Boulder each
     authorized 3,000,000 shares, each issued 2,667,042 in 2005
     and 2,198,148 in 2004 shares | 800,111     | 659,444    
|Capital in excess of stated value                                                                                                                                                                              | 17,337,329  | 1,461,748  
|Compensation recognized under employee stock plans                                                                                                                                                             | 200,900     | 200,900    
|Accumulated other comprehensive loss                                                                                                                                                                           | (54,500)    | 0          
|Earnings retained in the business                                                                                                                                                                              | 17,465,181  | 15,533,181 
|                                                                                                                                                                                                               | 35,749,021  | 17,855,273 
|Less cost of 282,018 shares of capital stock in treasury                                                                                                                                                       | 2,085,407   | 2,085,407  
|                                                                                                                                                                                                               | 33,663,614  | 15,769,866 
|                                                                                                                                                                                                               | $57,116,743 | $45,461,969

The accompanying notes are an integral part of the combined financial statements.







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Table of Contents



BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES



COMBINED STATEMENTS OF OPERATIONS

for the years ended October 31, 2005, 2004 and 2003



|                                                                                      |            |             |            
|------------------------------------------------------------------------------------- | ---------- | ----------- | -----------
|                                                                                      | 10/31/05   | 10/31/04    | 10/31/03   
|Revenues:                                                                             |            |             |            
|Real estate management                                                                | $3,099,585 | $3,236,598  | $3,129,394 
|Summer recreation operations                                                          | 774,288    | 1,944,023   | 1,876,724  
|Land resource management                                                              | 6,498,729  | 1,321,443   | 2,620,907  
|Rental income                                                                         | 2,689,319  | 1,131,159   | 320,509    
|                                                                                      | 13,061,921 | 7,633,223   | 7,947,534  
|Costs and expenses:                                                                   |            |             |            
|Real estate management                                                                | 3,330,173  | 2,986,785   | 2,750,152  
|Summer recreation operations                                                          | 683,458    | 1,660,939   | 1,738,786  
|Land resource management                                                              | 3,366,788  | 1,125,127   | 585,137    
|Rental income                                                                         | 1,277,841  | 749,105     | 331,665    
|General and administration                                                            | 1,552,814  | 898,315     | 1,055,746  
|Asset impairment loss                                                                 | 149,798    | 1,021,034   | 0          
|                                                                                      | 10,360,872 | 8,441,305   | 6,461,486  
|Operating profit (loss)                                                               | 2,701,049  | (808,082)   | 1,486,048  
|                                                                                      |            |             |            
|Other income (expense):                                                               |            |             |            
|Interest and other income                                                             | 139,738    | 1,076,964   | 22,475     
|Interest expense (net of capitalized interest of 
           $102,929 in 2005)        | (893,908)  | (458,489)   | (147,304)  
|                                                                                      | (754,170)  | 618,475     | (124,829)  
|                                                                                      |            |             |            
|Income (loss) from continuing operations before income taxes                          | 1,946,879  | (189,607)   | 1,361,219  
|                                                                                      |            |             |            
|Provision (credit) for income taxes:                                                  |            |             |            
|Current                                                                               | 8,000      | (71,000)    | (14,000)   
|Deferred                                                                              | 443,000    | 175,000     | 856,000    
|                                                                                      | 451,000    | 104,000     | 842,000    
|                                                                                      |            |             |            
|Net income (loss) before discontinued operations and cumulative effect                | 1,495,879  | (293,607)   | 519,219    
|                                                                                      |            |             |            
|Discontinued operations (including $12,026,867 gain on disposal in 2004)              | 576,121    | 12,109,492  | (1,957,356)
|                                                                                      |            |             |            
|Provision (credit) for income taxes on discontinued operations:                       |            |             |            
|Current                                                                               | 0          | 89,000      | 0          
|Deferred                                                                              | 140,000    | 3,975,000   | (559,000)  
|                                                                                      | 140,000    | 4,064,000   | (559,000)  
|                                                                                      |            |             |            
|Net income (loss) from discontinued operations                                        | 436,121    | 8,045,492   | (1,398,356)
|                                                                                      |            |             |            
|Net income (loss) before cumulative effect of change in accounting principle          | 1,932,000  | 7,751,885   | (879,137)  
|                                                                                      |            |             |            
|Cumulative effect of change in accounting principle (net of tax effect of $1,004,000) | 0          | (1,505,778) | 0          
|                                                                                      |            |             |            
|Net income (loss)                                                                     | $1,932,000 | $6,246,107  | $(879,137) 









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Table of Contents



BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES



COMBINED STATEMENTS OF OPERATIONS

for the years ended October 31, 2005, 2004 and 2003



|                                                                               |          |            |             
|------------------------------------------------------------------------------ | -------- | ---------- | ------------
|                                                                               | 10/31/05 | 10/31/04   | 10/31/03    
|                                                                               |          |            |             
|Basic earnings (loss) per weighted average combined 
         share:           |          |            |             
|                                                                               |          |            |             
|Net income (loss) before discontinued operations and
        cumulative effect | $0.70    | ($0.15)    | $0.27       
|Income (loss) from discontinued operations, net of tax                         | 0.20     | 4.20       | (0.72)      
|Cumulative effect of change in accounting principle, net of tax                | 0.00     | (0.79)     | 0.00        
|                                                                               |          |            |             
|Net income (loss)                                                              | $0.90    | $3.26      | ($0.45)     
|                                                                               |          |            |             
|Diluted earnings (loss) per weighted average combined                          |          |            |             
|share:                                                                         |          |            |             
|Net income (loss) before discontinued operations and                           |          |            |             
|cumulative effect                                                              | $0.67    | ($0.15)    | $0.27       
|Income (loss) from discontinued operations, net of tax                         | 0.20     | 4.11       | (0.72)      
|Cumulative effect of change in accounting principle, net of tax                | 0.00     | (0.77)     | 0.00        
|                                                                               |          |            |             
|Net income (loss)                                                              | $0.87    | $3.19      | ($0.45)     
|                                                                               |          |            |             
|Pro forma amounts assuming the change in accounting                            |          |            |             
|principle applied retroactively:                                               |          |            |             
|Pro forma net income (loss)                                                    | $0       | $7,751,885 | ($1,019,533)
|                                                                               |          |            |             
|                                                                               |          |            |             
|Pro forma basic earnings (loss) per weighted average                           |          |            |             
|combined share                                                                 | $0.00    | $4.05      | ($0.53)     
|                                                                               |          |            |             
|                                                                               |          |            |             
|Pro forma diluted earnings (loss) per weighted average
      combined share    | $0.00    | $3.96      | ($0.53)     



The accompanying notes are an integral part of the combined financial statements.







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Table of Contents



BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES



COMBINED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY

for the years ended October 31, 2005, 2004 and 2003



|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|------------------------------------------------------------------------------------------------- | ----------------- | -------- | ------------------------------- | --- | ---------------------------------------- | ---------------------------------- | ------------------------------------ | ------------------------------ | -----------
|                                                                                                  | Capital Stock (a) |          |                                 |     |                                          |                                    |                                      |                               
|                                                                                                  | Shares            | Amount   | Capital in Excess of Stated Par |     | Compensation
Under Employee 
Stock Plans | Earnings 
Retained in
the Business | Accumulated Other
Comprehensive
Loss | Capital
Stock 
in 
Treasury(c) | Total      
|Balances, October 31, 2002                                                                        | 2,198,148         | $659,444 | $1,461,748                      |     | $             -                          | $10,166,211                        |                                      | $(2,084,882)                   | $10,202,521
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Net loss                                                                                          |                   |          |                                 |     |                                          | (879,137)                          |                                      |                                | (879,137)  
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Purchase of capital stock in                                                                      |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|in treasury (50 shares)                                                                           |                   |          |                                 |     |                                          |                                    |                                      | (525)                          | (525)      
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Compensation recognized 
   under employee stock plans                                            |                   |          |                                 |     | 200,900                                  |                                    |                                      |                                | 200,900    
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Balances, October 31, 2003                                                                        | 2,198,148         | 659,444  | 1,461,748                       |     | 200,900                                  | 9,287,074                          |                                      | (2,085,407)                    | 9,523,759  
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Net income                                                                                        |                   |          |                                 |     |                                          | 6,246,107                          |                                      |                                | 6,246,107  
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Balances, October 31, 2004                                                                        | 2,198,148         | 659,444  | 1,461,748                       |     | 200,900                                  | 15,533,181                         |                                      | (2,085,407)                    | 15,769,866 
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Comprehensive income:                                                                             |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Net income                                                                                        |                   |          |                                 |     |                                          | 1,932,000                          |                                      |                                | 1,932,000  
|Other comprehensive loss ,                                                                        |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Additional minimum 
  pension liability 
  adjustment,
  net of deferred tax
  benefit of $37,000 |                   |          |                                 |     |                                          |                                    | $(54,500)                            |                                | (54,500)   
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                | 1,877,500  
|Issuance of common stock                                                                          | 407,894           | 122,367  | 15,014,180                      | (b) |                                          |                                    |                                      |                                | 15,136,547 
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Exercise of stock options                                                                         | 61,000            | 18,300   | 861,401                         |     |                                          |                                    |                                      |                                | 879,701    
|                                                                                                  |                   |          |                                 |     |                                          |                                    |                                      |                                |            
|Balances, October 31, 2005                                                                        | 2,667,042         | $800,111 | $17,337,329                     |     | $200,900                                 | $17,465,181                        | $(54,500)                            | $(2,085,407)                   | $33,663,614



(a) Capital stock, at stated value of $.30 per combined share

(b) net of issuance costs of $363,424

(c) 282,018, 282,018 and 281,968 shares held in treasury, at cost at October 31, 2005, 2004 and 2003



The accompanying notes are an integral part of the combined financial statements.









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Table of Contents



BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES



COMBINED STATEMENTS OF CASH FLOWS

for the years ended October 31, 2005, 2004 and 2003



|                                                                                                                     |              |              |            
|-------------------------------------------------------------------------------------------------------------------- | ------------ | ------------ | -----------
|                                                                                                                     | 10/31/05     | 10/31/04     | 10/31/03   
|Cash Flows (Used In) Provided By Operating Activities:                                                               |              |              |            
|Net income (loss)                                                                                                    | $1,932,000   | $6,246,107   | ($879,137) 
|Adjustments to reconcile net income (loss) to net
                  cash provided by (used in) operating activities: |              |              |            
|Depreciation                                                                                                         | 2,524,376    | 3,293,793    | 2,050,863  
|Asset impairment loss                                                                                                | 149,798      | 1,021,034    | 0          
|Deferred income taxes                                                                                                | 583,000      | 3,146,000    | 297,000    
|(Gain) loss on sale of assets                                                                                        | (7,767)      | (13,097,691) | 24,384     
|Compensation cost under employee stock plans                                                                         | 0            | 0            | 200,900    
|Changes in operating assets and liabilities:                                                                         |              |              |            
|Accounts receivable and mortgages receivable                                                                         | 121,794      | 251,667      | (670,354)  
|Prepaid expenses and other current assets                                                                            | 357,174      | 38,313       | 47,305     
|Deferred operating costs                                                                                             | 0            | 1,554,505    | (73,730)   
|Land and land development costs                                                                                      | (12,522,398) | (3,609,077)  | (918,860)  
|Amounts due to related parties                                                                                       | 6,668        | (67,511)     | 117,372    
|Accounts payable and accrued expenses                                                                                | 312,356      | 385,806      | 10,730     
|Deferred revenue                                                                                                     | (508,432)    | 10,105       | 39,291     
|Net cash (used in) provided by operating activities                                                                  | (7,051,431)  | (826,949)    | 245,764    
|Cash Flows Used In Investing Activities:                                                                             |              |              |            
|Proceeds from disposition of assets                                                                                  | 1,275,143    | 15,894,314   | 17,504     
|Additions to properties                                                                                              | (1,905,836)  | (18,689,878) | (2,661,513)
|Cash held in escrow                                                                                                  | 134,907      | 174,401      | (201,399)  
|Net cash used in investing activities                                                                                | (495,786)    | (2,621,163)  | (2,845,408)
|Cash Flows Provided By Financing Activities:                                                                         |              |              |            
|Borrowings on line of credit                                                                                         | 9,851,047    | 9,723,180    | 5,592,000  
|Payments on line of credit                                                                                           | (11,344,047) | (9,418,180)  | (5,004,000)
|(Repayments) proceeds from demand note payable                                                                       | (2,500,000)  | 2,500,000    | 0          
|Proceeds from long-term debt                                                                                         | 1,763,244    | 15,734,076   | 3,218,400  
|Payment of long-term debt and capital lease obligations                                                              | (4,495,310)  | (15,179,540) | (1,289,227)
|Purchase of treasury stock                                                                                           | 0            | 0            | (525)      
|Proceeds from issuance of common stock                                                                               | 16,016,248   | 0            | 0          
|Net cash provided by financing activities                                                                            | 9,291,182    | 3,359,536    | 2,516,648  
|Net increase (decrease) in cash and cash equivalents                                                                 | 1,743,965    | (88,576)     | (82,996)   
|Cash and cash equivalents, beginning of year                                                                         | 89,739       | 178,315      | 261,311    
|Cash and cash equivalents, end of year                                                                               | $1,833,704   | $89,739      | $178,315   
|                                                                                                                     |              |              |            
|Supplemental disclosures of cash flow information:                                                                   |              |              |            
|Cash paid during the year for:                                                                                       |              |              |            
|Interest                                                                                                             | $1,068,945   | $670,747     | $421,105   
|Income taxes                                                                                                         | $89,250      | $19,435      | $9,947     
|                                                                                                                     |              |              |            
|Supplemental disclosure of non cash investing and financing activities:                                              |              |              |            
|Additions to property acquired through capital
    lease obligations                                                 | $0           | $283,398     | $1,011,778 
|Seller financed property additions                                                                                   | $0           | $4,053,118   |            



The accompanying notes are an integral part of the combined financial statements







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NOTES TO COMBINED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:



Basis of Combination:



The combined financial statements include the accounts of Blue Ridge Real Estate Company (Blue Ridge) and its wholly-owned subsidiaries, Northeast Land Company, Jack Frost Mountain Company, Boulder Creek Resort Company, Moseywood Construction Company, Jack Frost National Golf Course, Inc., BRRE Holdings, Inc., Oxbridge Square Shopping Center, LLC, Coursey Commons Shopping Center, LLC, Coursey Creek, LLC and Cobble Creek, LLC; and Big Boulder Corporation (Big Boulder) and its wholly-owned subsidiaries, Lake Mountain Company and BBC Holdings, Inc. Under a Security Combination Agreement between Blue Ridge and Big Boulder and under the by-laws of both Companies, shares of the Companies are combined in unit certificates, each certificate representing concurrent ownership of the same number of shares of each company; shares of each company may be transferred only together with an equal number of shares of the other company. All significant intercompany accounts and transactions are eliminated.



Revenue Recognition:



Revenues are derived from a wide variety of sources, including sales of real estate, management of investment properties, home construction, property management services, timbering and leasing activities. Revenues are recognized as services are performed or products are delivered. Timbering revenues from stumpage contracts are recognized in accordance with Staff Accounting Bulletin No. 104 - Revenue Recognition, ("SAB 104").  At the time a stumpage contract is signed, the risk of ownership has been passed to the buyer at a fixed, determinable cost.  Reasonable assurance of collectibility has been determined by the date of signing, and the few obligations of the Companies have already been met.  Therefore, full accrual recognition at the time of contract execution is appropriate under SAB 104 guidance.



Disposition of Land and Resort Homes:



The Companies recognize income on the disposition of real estate in accordance with the provisions of Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate" (SFAS 66). Down payments of less than 20% are accounted for as deposits as required by SFAS No. 66.



The costs of developing land for resale as resort homes and the costs of constructing certain related amenities are allocated to the specific parcels to which the costs relate. Such costs, as well as the costs of construction of the resort homes, are charged to operations as sales occur. Land held for resale and resort homes under construction are stated at lower of cost or market.



Accounts and Mortgages Receivable:



Accounts receivable are reported at net realizable value.  Accounts are written off when they are determined to be uncollectible based upon managements assessment of individual accounts.  The allowance for doubtful accounts, which the Companies believe is insignificant, is estimated based on the Companies historical losses and the financial stability of its customers.



The Companies account for mortgages receivable on a cost basis.  Interest income is recorded on a monthly basis.  Late payment fees are charged on overdue payments of principal and interest.  Mortgages receivable are evaluated at origination and monitored on an ongoing basis for credit worthiness.  Mortgages receivable are considered fully collectible by management and accordingly no allowance for loan losses is considered necessary.  Any mortgage 90 days past due is reviewed by management for write off.







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Land and Land Development Costs:



The Companies capitalize as land and land development costs, the original acquisition cost, direct construction and development costs, property taxes, interest incurred on costs related to land under development and other related costs (engineering, surveying, landscaping, etc.) until the property reaches its intended use.  The cost of sales for individual parcels of real estate or condominium units within a project is determined using the relative sales value method.  Selling expenses are charged against income in the period incurred.



Properties and Depreciation:



Properties are stated at cost. Depreciation, including amortization of equipment under capital lease is provided principally using the straight-line method over the following years:

Land improvements

10-30

Buildings

3-30

Equipment and furnishings

3-20

Ski facilities:

Land improvements

10-30

Buildings

5-30

Machinery and equipment

5-20



Upon sale or retirement of depreciable property, the cost and related accumulated depreciation are removed from the related accounts, and resulting gains or losses are reflected in income.



Interest, real estate taxes, and insurance costs, including those costs associated with holding unimproved land, are normally charged to expense as incurred. Interest cost incurred during construction of facilities is capitalized as part of the cost of such facilities.



Maintenance and repairs are charged to expense, and major renewals and betterments are added to property accounts.



Impairment losses are recognized in operating income as they are determined.  The Companies review their long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  In that event, the Companies calculate the expected future net cash flows to be generated by the asset.  If those net future cash flows are less than the carrying value of the asset, an impairment loss is recognized in operating income.  The impairment loss is the difference between the carrying value and the fair value of the asset.  One impairment loss was recorded in Fiscal 2005 and two in Fiscal 2004.



Deferred Operating Costs:



Prior to fiscal 2004, management deferred operating costs related to ski operations in order to match those costs to revenues generated during the ski operating period which is principally the months of December through March.  Management has changed that principle and now recognizes ski costs as they occur.  The principle change and its effect on the financial statements are detailed in Note 2 Change in Accounting Principle.



Deferred Revenue:



Deferred revenue consists of dues, rents and deposits on land or home sales. Rents that are not yet earned relate to our commercial properties that have been paid in advance, and dues are related to memberships in our hunting and fishing clubs paid in advance. The Companies recognize revenue related to the hunting and fishing clubs over the one-year period that the dues cover.  Deposits are required on land and home sales.



Income Taxes:



The Companies account for income taxes utilizing the asset and liability method of recognizing the tax consequence of transactions that have been recognized for financial reporting or income tax purposes.  Among other things, this method requires current recognition of the effect of changes in statutory tax rates on previously provided deferred taxes.  Valuation allowances are established, when necessary, to reduce tax assets to the amount expected to be realized. Blue Ridge, including its subsidiaries, and Big Boulder, including its subsidiaries, report as separate entities for federal income tax purposes. State income taxes are

reported on a separate company basis.



Deferred Income:



Amounts received under a contract with the Pennsylvania Department of Transportation for reimbursement of the cost of a constructed asset are deferred.  The amounts will be recognized as income over the period in which depreciation on those assets is charged.  This asset has not yet been placed in service.



Advertising Costs:



Advertising costs directly related to ski operations were previously capitalized and included with deferred operating costs.  As of the April 1, 2004 change in accounting principle, advertising costs are now expensed when incurred (Note 2).  Advertising expense for Fiscal 2005, 2004, and 2003 was $1,133,715, $1,509,994 and $1,385,482, respectively.



Use of Estimates and Assumptions:



The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  For example, unexpected changes in market conditions or a downturn in the economy could adversely affect actual results.  Estimates are used in accounting for, among other things, land development costs, accounts and mortgages receivables, legal liability, insurance liability, depreciation, employee benefits, taxes, and contingencies.  Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the combined financial statements in the period they are determined to be necessary.



Management believes that its accounting policies regarding revenue recognition, land development, costs, long lived assets, deferred revenues and income taxes among others, affect its more significant judgments and estimates used in the preparation of its Combined Financial Statements.  For a description of these critical accounting policies and estimates, see Managements Discussion and Analysis of Financial Condition and Results of Operations.



Statement of Cash Flows:



For purposes of reporting cash flows, the Companies consider cash equivalents to be all highly liquid investments with maturities of three months or less when acquired.







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Concentration of Credit Risk:



Financial instruments which potentially subject the Companies to concentration of credit risk consist principally of temporary cash investments. The Companies temporary cash investments are held by financial institutions. The Companies have not experienced any losses related to these investments.



Earnings (Loss) Per Share:



Basic earnings (loss) per share is calculated based on the weighted-average number of shares outstanding.  Diluted earnings (loss) per share includes the dilutive effect of stock options.



Business Segments:



The Companies currently operate in three business segments, which consist of Real Estate Management/Rental Operations, Summer Recreational Operations and Land Resource Management segments.  The Companies previously operated in four business segments, the fourth being Ski Operation.  However, on December 1, 2005, the Companies entered into a 28 year lease for the Jack Frost Mountain Ski Area and Big Boulder Ski Area with JFBB Ski Areas Inc., an affiliate of Peak Resorts, both unaffiliated parties.  Pursuant to the lease, JFBB Ski Areas will operate the ski areas and will make monthly lease payments to us during the ski season.  This resulted in the termination of the Ski Operations business segment, reducing the number of business segments from four to three. As a result of entering into the lease agreement, the Companies have discontinued future operations and cash flows from the ski operations segment and have reported the activity recognized for the years ending October 31, 2005, 2004 and 2003 as discontinued operations. Future revenue and expenses from the leased ski areas will be included in the Real Estate Management / Rental Operations business segment.The Companies business segments were determined from the Companies internal organization and management reporting, which are based primarily on differences in services.  Financial information about our segments can be found in Note 14.



Stock Compensation:



The Companies apply APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options as permitted by SFAS No. 123, "Accounting for Stock Based Compensation", and SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." Under APB No. 25, because the exercise price of the employee stock options equals the estimated fair market value of the Companies' underlying stock on the date of the grant, no compensation expense is recognized. However, during Fiscal 2003, the original term of 35,000 options granted at an original exercise price of $6.75 were extended to July 1, 2008. In accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation ("FIN 44"), the extension of the life of the award requires a new measurement of compensation as if the award was newly granted. Because the exercise price was less than the current fair market value at the new date of grant, compensation cost of $122,900, net of tax has been recognized in the combined statement of operations.



Had compensation cost for the Companies employee stock option plan been determined consistent with SFAS No. 123 and SFAS No. 148, the Companies net income and earnings per share would have been reduced to the pro forma amounts indicated below:



|                                   |            |               |              
|---------------------------------- | ---------- | ------------- | -------------
|                                   | 10/31/05   | 10/31/04      | 10/31/03     
|                                   |            |               |              
|Net income (loss), as reported     | $1,932,000 | $ 6,246,107   | $   (879,137)
|Add: Stock-based employee          |            |               |              
|compensation expense included in   |            |               |              
|reported net (loss) income, net of |            |               |              
|related tax effects                | --         | --            | 122,900      
|Deduct: Total stock-based employee |            |               |              
|compensation expense determined    |            |               |              
|under fair value based method for  |            |               |              
|all awards, net of tax effects     | (113,256)  | (372,557)     | (346,368)    
|                                   |            |               |              
|Pro forma net income (loss)        | $1,818,744 | $   5,873,550 | $ (1,102,605)
|                                   |            |               |              
|                                   |            |               |              
|Basic earnings (loss) per share:   |            |               |              
|As reported                        | $0.90      | $    3.26     | $   (0.45)   
|Pro forma                          | $0.84      | $    3.09     | $   (0.57)   
|                                   |            |               |              
|Diluted earnings (loss) per share: |            |               |              
|As reported                        | $0.87      | $  3.19       | $  (0.45)    
|Pro forma                          | $0.82      | $  3.00       | $  (0.57)    



Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models.  These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Companies' calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2005, 2004, and 2003, respectively: 4.7, 3.8, and 4.4 years expected life; stock volatility of 6.0%, 22.3%, and 5.9%; a risk-free interest rate of 4.5%, 3.6%, and 3.0%; and no dividends during the expected term.



Reclassification:



Certain amounts in the 2004 and 2003 combined financial statements have been reclassified to conform to the 2005 presentation.



New Accounting Pronouncements:



In January 2003, the Financial Accounting Standards Board (FASB) issued FIN No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"), which addresses whether certain types of entities, referred to as variable interest entities ("VIEs"), should be consolidated in a company's financial statements. A VIE is an entity that either: (1) has equity investors that lack certain essential characteristics of a controlling financial interest, including the ability to control the entity, the obligation to absorb the entity's expected losses and the right to receive the entity's expected residual returns, or (2) lacks sufficient equity to finance its own activities without financial support provided by the other entities, which in turn would be expected to absorb at least some of the expected losses of the VIE. An entity should consolidate a VIE if it stands to absorb a majority of the VIE's expected losses or to receive a majority of the VIE's expected residual returns. FIN No. 46 is effective now for new VIE's formed after December 31, 2003. Application of FIN No. 46 for VIE's created prior to January 1, 2004 is required for the first annual period beginning after December 15, 2004. The Companies do not expect the adoption of FIN No. 46 to have a significant impact on its financial position or results of operations.



In December 2004, FASB issued Statement No. 123 revised (SFAS No. 123R), Share-Based Payment. SFAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No.123R replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.SFAS No. 123R will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The Companies are required to apply SFAS No. 123R as of the first interim or annual reporting period that begins after June 15, 2005 which is the quarter ended January 31, 2006. The Companies expect to recognize compensation expense related to non-vested awards totaling approximately $570,000 over the next 1.6 years based on weighted average vesting using the modified prospective approach.

In December 2004, FASB issued Statement No. 152 (SFAS No. 152), Accounting for Real Estate Time-Sharing Transactions. SFAS No. 152 clarifies the accounting for sales and other transactions involving real estate time-sharing transactions and is effective for financial statements for fiscal years beginning after June 15, 2005. The Companies do not expect the adoption of SFAS No. 152 to have a significant impact on their financial position or results of operations.

Also in December 2004, FASB issued Statement No. 153 (SFAS No. 153), Exchanges of Nonmonetary Assets. SFAS No. 153 eliminates a previous exception from fair value reporting for nonmonetary exchanges of similar productive assets and introduces an exception from fair value reporting for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary change is considered to have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  SFAS No. 153 is applicable to nonmonetary exchanges 
occurring in fiscal periods beginning after June 15, 2005. The Companies do not expect the adoption of SFAS No. 153 to have a significant impact on its financial position or results of operations.

In May 2005, FASB issued Statement No. 154 (SFAS No. 154), Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3, which provides guidance on the accounting for and reporting of accounting changes and error corrections.  SFAS No. 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005.  The Companies do not expect the adoption of SFAS No. 154 to have a significant impact on their financial position or results of operations.



2.  CHANGE IN ACCOUNTING PRINCIPLE



Prior to Fiscal 2004, managements estimate of deferred operating costs was primarily based on deferring costs directly related to ski operations in order to match those costs to the period in which ski operating revenues were recognized. Ski operating revenues were recognized principally over the months of December through March.  Effective April 1, 2004, the Companies elected to change their method of deferring certain ski operating costs incurred during the non-ski season.  Upon investigation of competitors practices, management had determined that a change in accounting principle should be made in order to report ski operations in accordance with the predominant industry practice used by similar operating companies.  Additionally, the Companies believed the new method better enabled users of the financial statements, including management, to benchmark the Companies ski operations segment results against their competitors by removing the timing difference associated with matching certain ski operating costs incurred in a prior fiscal year against current fiscal year ski operating revenues.  The effect of this change in accounting principle in Fiscal 2004 is a $2,509,778 decrease in net income, net of a deferred tax benefit of $1,004,000 and is reflected in the Combined Statements of Operations.



3.  DISCONTINUED OPERATIONS



As a result of managements decision to primarily focus its efforts on land development activities, effective December 1, 2005, the Companies entered into a long term lease agreement with JFBB Ski Areas, Inc., an affiliate of Peak Resorts (the Lessee), an unrelated third party, whereby the Lessee will operate and maintain the two ski resorts and recognize the revenues and expenses from operations in exchange for the Companies receiving rental payments under the terms of the lease.  As a result of entering into the lease agreement, the Companies have discontinued future operations from the ski operations segment and have reported the activity recognized for the years ending October 31, 2005, 2004 and 2003 as discontinued operations.



Operating results, including interest expense incurred, of the discontinued operation for the ski operations in Fiscal years 2005, 2004 and 2003 are as follows:



|                                                                  |             |            |            
|----------------------------------------------------------------- | ----------- | ---------- | -----------
|                                                                  | 2005        | 2004       | 2003       
|Revenues                                                          | $10,163,222 | $9,742,230 | $10,269,984
|Expenses                                                          | 9,587,101   | 10,077,821 | 10,781,877 
|Income (loss) from discontinued operations
   before income taxes | $576,121    | ($335,591) | ($511,893) 

The major assets related to ski operations have been classified on the combined balance sheets as of October 31, 2005 as accounts receivable-ski tenant and assets held to be used.

Effective March 10, 2004, the Companies discontinued operation of the Dreshertown Shopping Center as a result of the property being sold in Fiscal 2004.  Previously this discontinued operation was included in the Real Estate Management / Rental Income business segment of the combined statement of operations.







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Operating results, including interest expense incurred, of the discontinued operation for the Dreshertown Shopping Center in Fiscal years 2005, 2004 and 2003 are as follows:

|                                                                  |      |             |             
|----------------------------------------------------------------- | ---- | ----------- | ------------
|                                                                  | 2005 | 2004        | 2003        
|Revenues                                                          | $0   | $720,018    | $1,644,100  
|Expenses                                                          | 0    | (301,802)   | (3,089,563) 
|Income (loss) from operations                                     | 0    | 418,216     | (1,445,463) 
|Gain on sale                                                      | 0    | 12,026,867  | 0           
|Income (loss) from discontinued
   operations before income taxes | $0   | $12,445,083 | ($1,445,463)

There are no remaining assets and liabilities of the Dreshertown Shopping Center at October 31, 2005 and 2004.

4. CONDENSED FINANCIAL INFORMATION:

Condensed financial information of the Companies, Blue Ridge and its subsidiaries and Big Boulder and its subsidiaries, at October 31, 2005, 2004 and 2003 and for each of the years then ended is as follows:

|                                                              |                             |            |           
|------------------------------------------------------------- | --------------------------- | ---------- | ----------
|                                                              | Blue Ridge and Subsidiaries
|                                                              |                             |            |           
|                                                              | 10/31/05                    | 10/31/04   | 10/31/03  
|FINANCIAL POSITION:                                           |                             |            |           
|Current assets                                                | $641,612                    | $1,761,784 | $2,342,819
|Total assets                                                  | 42,852,408                  | 38,318,248 | 20,238,523
|Current liabilities                                           | 3,334,319                   | 7,649,751  | 11,531,451
|Shareholders' equity                                          | 20,371,685                  | 10,783,896 | 3,801,014 
|OPERATIONS:                                                   |                             |            |           
|Revenues                                                      | 11,265,404                  | 6,827,127  | 7,105,643 
|Income (loss) from continuing 
   operations and before taxes | 2,141,777                   | (554,852)  | 1,519,005 
|Provision (credit) for income
   taxes                        | 565,800                     | 9,000      | 1,061,000 
|Net income (loss)                                             | 1,629,212                   | 6,982,885  | (854,187) 



|                                                              |                              |           |           
|------------------------------------------------------------- | ---------------------------- | --------- | ----------
|                                                              | Big Boulder and Subsidiaries
|                                                              |                              |           |           
|                                                              | 10/31/05                     | 10/31/04  | 10/31/03  
|FINANCIAL POSITION:                                           |                              |           |           
|Current assets                                                | $2,670,703                   | $   0     | $2,169,047
|Total assets                                                  | 14,264,335                   | 7,143,721 | 7,721,887 
|Current liabilities                                           | 692,406                      | 1,215,895 | 1,116,902 
|Shareholders' equity                                          | 13,291,929                   | 4,985,970 | 5,722,745 
|OPERATIONS:                                                   |                              |           |           
|Revenues                                                      | 1,796,517                    | 806,096   | 841,891   
|Income (loss) from continuing 
   operations and before taxes | (194,898)                    | 365,245   | (157,786) 
|Provision (credit) for                                        |                              |           |           
|income taxes                                                  | (114,800)                    | 95,000    | (219,000) 
|Net income (loss)                                             | 302,788                      | (736,778) | (24,950)  









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5.  SHORT-TERM FINANCING:



Management has two lines of credit with Manufacturers and Traders Trust Company (the Bank) totaling $7.85 million.  The $6.85 million general line has been temporarily increased from $2.1 million.  Management is currently negotiating a permanent increase to the line primarily to facilitate the future development of real estate. At October 31, 2005, Blue Ridge had not utilized any of the general line of credit, aggregating $6,850,000 which is an on demand line with the temporary increase expiring March 15, 2006. The line of credit bears interest at 1% less than the prime rate (5.75% at October 31, 2005). The $1 million line was secured for real estate transactions.    At October 31, 2005, the Companies had also not utilized any of the real estate line of credit, aggregating $1,000,000.  The real estate line of credit bears interest at .50% less than the prime rate (6.25% at October 31, 2005).  The weighted average interest rate for the year ended October 31, 2005 was 5.42%.  The agreement requires, among other things, that the Companies comply with consolidated debt to worth, debt service coverage and tangible net worth ratios.  The Companies have met each of these covenants at October 31, 2005.  The line of credit agreement enables the Companies to issue letters of credit in amounts up to $6,850,000.



During Fiscal 2005 the Companies entered into two letters of credit with Manufacturers and Traders Trust Company. The Bank agreed to issue on the Companies' behalf, irrevocable standby Letters of Credit to Kidder Township aggregating an amount not to exceed $6,403,478 for the purpose of guaranteeing completion of the infrastructure improvements to the Laurelwoods II and Boulder Lake Village premises as required by Kidder Township.  On July 20, 2005 the first letter of credit was issued aggregating up to $2,571,884 for the purpose of infrastructure improvements to the Laurelwoods II premises.  On September 12, 2005 the second letter of credit was issued aggregating $3,831,594 for the purpose of the development of infrastructure relating to the Boulder Lake Village premises.  The amount of the Letters of Credit is to be reduced as the site improvements and infrastructure work is completed and shall be for a maximum period of two years.  The Letters of Credit are part of, and reduce availability under the general line of credit.  The Letters of Credit as of October 31, 2005 were $1,675,991 and $3,831,594 respectively.



During Fiscal 2004, management entered into a $2,500,000 demand note payable with Manufacturers and Traders Trust Company.  Interest is due and payable monthly at the banks prime rate which was 6.75% at October 31, 2005.  On May 11, 2005 the outstanding balance of $2,500,000 was paid in full  and interest was paid as of May 11, 2005 at a weighted average rate of 5.5%.  The demand note was cancelled upon payment and is no longer available.



6.  LONG-TERM DEBT:



Long-term debt as of October 31, 2005 and 2004 consists of the following:



|                                                                                                                                                                                                                                  |             |            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | -----------
|                                                                                                                                                                                                                                  | 10/31/05    | 10/31/04   
|Mortgage note payable to insurance company, interest fixed at 10.5% payable in monthly installments of $15,351 including interest through Fiscal 2014                                                                             | $1,007,337  | $1,081,488 
|                                                                                                                                                                                                                                  |             |            
|Mortgage note payable to bank, interest fixed at 5.17% (effective 12/09/04 for one year, thereafter negotiated) payable in monthly installments of $7,122 including interest through Fiscal 2008.                                 | 620,926     | 0          
|                                                                                                                                                                                                                                  |             |            
|Mortgage note payable to finance company, interest fixed at 7.40% payable in monthly installments of $33,091 including interest through Fiscal 2023                                                                               | 3,917,409   | 4,012,134  
|                                                                                                                                                                                                                                  |             |            
|Mortgage note payable to bank, interest fixed at 5.59% payable in monthly installments of $44,146 including interest through Fiscal 2014                                                                                          | 7,604,070   | 7,691,714  
|                                                                                                                                                                                                                                  |             |            
|Site development mortgage note payable to bank, interest at the bank's prime rate (6.75% at October 31, 2005) payable in installments of $45,100 due at the closing of each Laurelwoods unit with the balance due August 1, 2006. | 0           | 334,076    
|                                                                                                                                                                                                                                  |             |            
|Mortgage notes repaid in 2005                                                                                                                                                                                                     | 0           | 1,924,151  
|Capital lease obligations repaid in 2005                                                                                                                                                                                          | 0           | 838,245    
|Less current installments                                                                                                                                                                                                         | 348,962     | 1,010,746  
|                                                                                                                                                                                                                                  | $12,800,780 | $14,871,062



Properties at cost, which have been pledged as collateral for long-term debt, include the following at October 31, 2005:



|                                        |            
|--------------------------------------- | -----------
|Investment properties leased to others  | $2,190,470 
|Assets held to be used (ski facilities) | $18,004,735



(a) During Fiscal 2004 the Companies entered into a construction line of credit mortgage note with Manufacturers and Traders Trust Company aggregating an amount not to exceed $4,100,000.  The funds are being used for construction of new units in the Laurelwoods premises and will bear interest at the bank's prime rate (6.75% at October 31, 2005).  Advances for each unit are permitted based upon progression of construction as determined by the bank upon its reasonable discretion and further based upon written certification of the completion of the applicable construction phase based upon a determined draw schedule.  During 2005 advances totaling $573,500 were taken on the loan and paid in full as of October 31, 2005.  The weighted average interest rate was 5.92% for the year ended October 31, 2005.



The aggregate amount of long-term debt maturing in each of the five years and thereafter ending subsequent to October 31, 2005, is as follows:  2006 - $348,962;   2007 - $375,323;    2008 - $402,600;    2009 - $434,647;   2010-$468,056;  thereafter $11,120,154.



7.   INCOME TAXES:



The provision (credit) for income taxes from continuing operations is as follows:

|                   |           |           |          
|------------------ | --------- | --------- | ---------
|                   | 10/31/05  | 10/31/04  | 10/31/03 
|Currently payable: |           |           |          
|Federal            | $0        | ($89,000) | ($14,000)
|State              | 8,000     | 18,000    | 0        
|                   | 8,000     | (71,000)  | (14,000) 
|Deferred:          |           |           |          
|Federal            | 577,000   | (527,000) | 477,000  
|State              | (134,000) | 702,000   | 377,000  
|                   | 443,000   | 175,000   | 856,000  
|                   | $451,000  | $104,000  | $842,000 



A reconciliation between the amount computed using the statutory federal income tax rate and the provision (credit) for income taxes is as follows:



|                                                          |           |           |         
|--------------------------------------------------------- | --------- | --------- | --------
|                                                          | 10/31/05  | 10/31/04  | 10/31/03
|Computed at statutory rate                                | $661,939  | ($64,567) | $462,771
|State net operating losses subject to valuation allowance | (194,116) | (233,000) | 204,356 
|State income taxes, net of federal income tax             | (83,160)  | 364,980   | 197,340 
|Nondeductible expenses                                    | 63,508    | 3,852     | 1,980   
|Other                                                     | 2,830     | 32,735    | (19,563)
|AMT (utilization) tax                                     | 0         | 0         | (4,884) 
|Provision for income taxes from continuing operations     | $451,000  | $104,000  | $842,000









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The components of the deferred tax assets and (liabilities) as of October 31, 2005 and 2004 are as follows:



|                                                 |              |             
|------------------------------------------------ | ------------ | ------------
|                                                 | 10/31/05     | 10/31/04    
|Current deferred tax asset:                      |              |             
|Accrued expenses                                 | $90,000      | $55,000     
|Deferred revenues                                | 33,000       | 30,000      
|Current deferred tax asset                       | 123,000      | 85,000      
|                                                 |              |             
|Noncurrent deferred tax asset (liability):       |              |             
|Depreciation                                     | (6,818,000)  | (7,444,000) 
|Deferred income, sewer line and tower            | 210,000      | 212,000     
|Capital lease obligation                         | 0            | 3,000       
|Additional minimum pension liability             | 37,000       | 0           
|Net operating losses and AMT credit carryforward | 1,660,000    | 3,208,000   
|Contribution carryforward                        | 68,000       | 0           
|Valuation allowance                              | (1,175,000)  | (1,413,000) 
|                                                 |              |             
|Noncurrent deferred tax liability                | (6,018,000)  | (5,434,000) 
|                                                 |              |             
|Deferred income tax liability, net               | ($5,895,000) | ($5,349,000)



At October 31, 2005, the Companies have $245,620 of Alternative Minimum Tax (AMT) credit carryforward available to reduce future income taxes.  The AMT credit has no expiration date.



At October 31, 2005, the Companies have available approximately $1,388,000 of federal net operating losses which will expire from 2020 to 2022. The Companies also have state net operating loss carryforwards of approximately $9,426,000 that will expire from 2019 to 2024.  The Companies have recorded a valuation allowance against state net operating losses, which are not expected to be utilized.



8.   PENSION BENEFITS:



|                                                                                                    |          |          |         
|--------------------------------------------------------------------------------------------------- | -------- | -------- | --------
|Weighted Average Assumptions                                                                        | 10/31/05 | 10/31/04 | 10/31/03
|Discount Rates used to determine net periodic
   benefit cost as of October 31, 2005, 2004 and 2003 | 5.75%    | 6.50%    | 6.50%   
|Expected long-term rates of return on assets                                                        | 8.50%    | 8.50%    | 8.50%   
|Rates  of increase in compensation levels                                                           | 4.00%    | 4.00%    | 4.00%   



|                                        |            |           
|--------------------------------------- | ---------- | ----------
|Change in Benefit Obligation            | 10/31/05   | 10/31/04  
|Benefit obligation at beginning of year | $4,719,943 | $4,412,671
|Service cost (net of expenses)          | 228,789    | 220,086   
|Interest cost                           | 305,039    | 279,984   
|Plan amendments                         | 0          | 0         
|Actuarial (gain) loss                   | 657,358    | (28,511)  
|Benefit payments                        | (169,393)  | (164,287) 
|Benefit obligation at end of year       | $5,741,736 | $4,719,943



|                                               |            |           
|---------------------------------------------- | ---------- | ----------
|Change in Plan Assets                          | 10/31/05   | 10/31/04  
|Fair value of plan assets at beginning of year | $3,082,990 | $2,736,947
|Actual return on plan assets                   | 185,786    | 97,286    
|Employer contributions                         | 486,334    | 458,512   
|Benefits paid                                  | (169,393)  | (164,287) 
|Actual expenses paid during the year           | (57,187)   | (45,468)  
|Fair value of plan assets at end of year       | $3,528,530 | $3,082,990







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|                                            |              |             
|------------------------------------------- | ------------ | ------------
|Reconciliation of Funded Status of the Plan | 10/31/05     | 10/31/04    
|Funded status at end of year                | ($2,213,206) | ($1,636,953)
|Unrecognized transition obligation          | 64,305       | 72,785      
|Unrecognized net prior service cost         | 6,470        | 7,081       
|Unrecognized net actuarial (gain) loss      | 1,675,322    | 950,681     
|Net amount recognized at end of year        | ($467,109)   | ($606,406)  



|                                                  |            |           
|------------------------------------------------- | ---------- | ----------
|Amounts Recognized in the Combined Balance Sheets | 10/31/05   | 10/31/04  
|Prepaid benefit cost                              | $0         | $0        
|Accrued benefit cost                              | (629,384)  | (606,406) 
|Intangible asset                                  | 70,775     | 0         
|Accumulated other comprehensive loss              | 91,500     | 0         
|Net amount recognized                             | ($467,109) | ($606,406)



|                                     |           |         
|------------------------------------ | --------- | --------
|                                     | 10/31/05  | 10/31/04
|Additional minimum pension liability | ($91,500) | $0      



|                                                                                                                |            |           
|--------------------------------------------------------------------------------------------------------------- | ---------- | ----------
|Additional Year-End Information for Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets | 10/31/05   | 10/31/04  
|Projected benefit obligation                                                                                    | $5,741,736 | $4,719,943
|Accumulated benefit obligation                                                                                  | $4,157,914 | $3,638,886
|Fair value of plan assets                                                                                       | $3,528,530 | $3,082,990



|                                                    |            |           
|--------------------------------------------------- | ---------- | ----------
|Pension Expense Reconciliation                      | 10/31/05   | 10/31/04  
|Prepaid (accrued) benefit cost at beginning of year | ($606,406) | ($733,710)
|Net periodic benefit cost                           | (347,037)  | (331,208) 
|Contributions                                       | 486,334    | 458,512   
|Prepaid (accrued) benefit cost at end of year       | ($467,109) | ($606,406)



|                                        |           |           |          
|--------------------------------------- | --------- | --------- | ---------
|Components of Net Periodic Benefit Cost | 10/31/05  | 10/31/04  | 10/31/03 
|Service cost                            | $274,289  | $263,286  | $237,437 
|Interest cost                           | 305,039   | 279,984   | 261,011  
|Expected return on plan assets          | (274,934) | (245,414) | (201,264)
|                                        |           |           |          
|Amortization of transition obligation   | 8,480     | 8,480     | 8,480    
|Amortization of prior service cost      | 611       | 611       | 611      
|Amortization of accumulated gain        | 33,552    | 24,261    | 13,528   
|Total net periodic benefit cost         | $347,037  | $331,208  | $319,803 



|                                   |             |           
|---------------------------------- | ----------- | ----------
|Estimated Future Benefits Payments | Fiscal Year | Benefits  
|                                   | 2006        | $179,744  
|                                   | 2007        | $174,851  
|                                   | 2008        | $235,146  
|                                   | 2009        | $224,069  
|                                   | 2010        | $213,408  
|                                   | 2011-2014   | $1,621,525



The Companies expect to contribute $174,007 to the pension plan in fiscal 2006.



Measurement Date   October 31, 2005







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|                              |                                              |                                                           
|----------------------------- | -------------------------------------------- | ----------------------------------------------------------
|Weighted Average Assumptions  | For Determination of:                       
|                              | Benefit Obligations 
as of 
October 31, 2005 | Net Periodic Pension Cost for Year Ending October 31, 2005
|                              |                                              |                                                           
|Discount rate                 | 5.75%                                        | 6.50%                                                     
|Rate of compensation increase | 4.00%                                        | 4.00%                                                     
|Expected long-term return     | 8.50%                                        | 8.50%                                                     
|                              |                                              |                                                           



|                                   |          |         
|---------------------------------- | -------- | --------
|Weighted-average asset allocations | 10/31/05 | 10/31/04
|Asset Category                     |          |         
|Equity                             | 59.37%   | 65.86%  
|Fixed Income                       | 40.24%   | 23.70%  
|Money Market                       | 0.39%    | 10.44%  
|Total                              | 100.00%  | 100.00% 



The Companies goal is to conservatively invest the plan assets in higher-grade securities and other assets with a minimum risk of market fluctuation.  Based on the allocation of our assets between equity, fixed income and money market we estimate our long term rate of return to be approximately 8.5%.



9.  PROPERTIES:



Properties consist of the following at October 31, 2005 and 2004.



|                           |            |           
|-------------------------- | ---------- | ----------
|                           | 10/31/2005 | 10/31/2004
|Land, held for investment  | $6,511,879 | $6,366,791
|Land improvements          | 4,805,023  | 1,258,615 
|Corporate buildings        | 496,092    | 496,092   
|Buildings leased to others | 21,823,689 | 26,255,727
|Equipment and furnishings  | 2,622,924  | 3,917,853 



|                                               |             |            
|---------------------------------------------- | ----------- | -----------
|Ski Facilities                                 |             |            
|Land                                           | 0           | 4,552      
|Land improvements                              | 0           | 8,359,121  
|Buildings                                      | 0           | 6,792,365  
|Machinery & equipment                          | 0           | 24,279,411 
|                                               | 36,259,607  | 77,730,527 
|Less accumulated depreciation and amortization | 8,764,889   | 38,993,172 
|                                               | $27,494,718 | $38,737,355



The net book value of machinery and equipment is $899,989 on assets held under a capital lease at October 31, 2004.  In Fiscal 2005, capital lease obligations were paid off.  In Fiscal 2005 an impairment loss of $149,798 resulted from the closing of the Splatter Paintball facility. In Fiscal 2004, $452,325 was recorded as an impairment loss as a result of the closing of the Fern Ridge Campground and an impairment loss of $568,709 was recorded as a result of the closing of the Traxx Motocross Park.







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10.  ACCRUED LIABILITIES:



Accrued liabilities consist of the following at October 31, 2005 and 2004.



|                                  |            |           
|--------------------------------- | ---------- | ----------
|                                  | 10/31/2005 | 10/31/2004
|Accrued Payroll                   | $311,057   | $263,602  
|Accrued Security & Other Deposits | 144,409    | 170,908   
|Accrued Professional Fees         | 33,674     | 33,841    
|Accrued - Miscellaneous           | $442,789   | 117,440   
|                                  | $931,929   | $585,791  



11.  LEASES:



The Companies are lessors under various operating lease agreements for the rental of land, land improvements and investment properties leased to others. Rents are reported as income over the terms of the leases as they are earned.  Shopping centers are leased to various tenants for renewable terms averaging 3.11 years with options for renewal.  Information concerning rental properties and minimum future rentals under current leases as of October 31, 2005 is as follows:



|                                       |            |                             |  |                         
|-------------------------------------- | ---------- | --------------------------- |  | ------------------------
|                                       |            | Properties Subject to Lease
|                                       |            | Cost                        |  | Accumulated Depreciation
|Investment properties leased to others |            | $20,064,769                 |  | $2,840,217              
|Land and land improvements             |            | 6,735,142                   |  | 1,804,123               
|Minimum future rentals:                |            |                             |  |                         
|Fiscal years ending October 31:        | 2006       | 2,392,922                   |  |                         
|                                       | 2007       | 1,895,142                   |  |                         
|                                       | 2008       | 1,555,755                   |  |                         
|                                       | 2009       | 1,260,046                   |  |                         
|                                       | 2010       | 992,179                     |  |                         
|                                       | Thereafter | 23,132,073                  |  |                         
|                                       |            | $31,228,117                 |  |                         



Thereafter, includes $1,284,000 under a land lease expiring in 2072; $8,492,880 under a net lease for a store expiring in 2024; and $5,718,606 under a net lease for a store expiring in January 2039. There were no contingent rentals included in income for the fiscal years ended October 31, 2005, 2004 and 2003.  Includes all option years and rental escalations, recognized using straight-line basis.



12.  FAIR VALUE OF FINANCIAL INSTRUMENTS



The estimated fair values of the Companies' financial instruments are as follows at October 31, 2005 and 2004:



|                                  |                 |              |                 |           
|--------------------------------- | --------------- | ------------ | --------------- | ----------
|                                  | Carrying Amount | Fair Value   | Carrying Amount | Fair Value
|ASSETS:                           | 10/31/05        | 10/31/04    
|Cash and cash equivalents         | $  1,833,704    | $  1,833,704 | $  89,739       | $  89,739 
|Accounts and mortgages receivable | 685,185         | 685,185      | 806,979         | 806,979   
|Cash held in escrow               | 0               | 0            | 134,907         | 134,907   



|                               |                 |            |                 |           
|------------------------------ | --------------- | ---------- | --------------- | ----------
|                               | Carrying Amount | Fair Value | Carrying Amount | Fair Value
|LIABILITIES:                   | 10/31/05        | 10/31/04  
|Notes payable, line of credit  | 0               | 0          | 1,493,000       | 1,493,000 
|Notes payable, demand note     | 0               | 0          | 2,500,000       | 2,500,000 
|Accounts payable               | 1,875,513       | 1,875,513  | 1,708,615       | 1,708,615 
|Amounts due to related parties | 120,836         | 0          | 114,168         | 0         
|Long-term debt                 | 13,149,742      | 14,179,038 | 15,881,808      | 17,956,705



Fair Values were determined as follows:



Cash and cash equivalents, accounts and mortgages receivable, cash held in escrow, notes payable, line of credit, notes payable-demand note and accounts payable:  The carrying amounts approximate fair value because of the short-term maturity of these instruments.



Amounts due to related parties: Estimating the fair value of these instruments is not practicable because the terms of these transactions could not be duplicated in the market.



Long-term debt:  The fair value of long term debt is estimated using discounted cash flows based on current borrowing rates available to the Companies for similar types of borrowing arrangements.



13.  QUARTERLY FINANCIAL INFORMATION (Unaudited)



The results of operations for each of the quarters in the last two years are presented below.



|                                                                                                                 |            |            |            |            |            
|---------------------------------------------------------------------------------------------------------------- | ---------- | ---------- | ---------- | ---------- | -----------
|                                                                                                                 | 1st        | 2nd        | 3rd        | 4th        | Total      
|Year ended 10/31/05                                                                                              |            |            |            |            |            
|Operating revenues                                                                                               | $5,132,390 | $2,581,105 | $2,478,126 | $2,870,300 | $13,061,921
|Operating profit (loss)                                                                                          | $2,619,467 | $87,734    | $56,160    | ($62,312)  | $2,701,049 
|Net income (loss) from discontinued
   operations                                                                | $439,090   | $1,619,487 | ($917,765) | ($704,691) | $436,121   
|Net income (loss) before cumulative
   effect of change in accounting principle                                  | $1,751,846 | $1,198,280 | ($784,316) | ($233,810) | $1,932,000 
|Net income (loss)                                                                                                | $1,751,846 | $1,198,280 | ($784,316) | ($233,810) | $1,932,000 
|Net income (loss) before discontinued
   operations and cumulative effect per
   weighted average combined share | $0.68      | ($0.22)    | $0.06      | $0.18      | $0.70      
|Net income (loss) per weighted average
   combined share                                                         | $0.91      | $0.61      | ($0.48)    | ($0.14)    | $0.90      





|                                                                                                                 |            |            |            |              |           
|---------------------------------------------------------------------------------------------------------------- | ---------- | ---------- | ---------- | ------------ | ----------
|                                                                                                                 | 1st        | 2nd        | 3rd        | 4th          | Total     
|Year ended 10/31/04                                                                                              |            |            |            |              |           
|Operating revenues                                                                                               | $1,741,854 | $1,136,884 | $2,583,210 | $2,171,275   | $7,633,223
|Operating profit (loss)                                                                                          | $383,156   | ($222,606) | ($711,202) | ($257,430)   | ($808,082)
|Net income (loss) from discontinued
   operations                                                                | $864,845   | $9,164,987 | ($936,577) | ($1,047,763) | $8,045,492
|Net income (loss) before cumulative
   effect of change in accounting principle                                  | $955,174   | $8,243,787 | ($794,315) | ($652,761)   | $7,751,885
|Net income (loss)                                                                                                | $127,016   | $7,566,167 | ($794,315) | ($652,761)   | $6,246,107
|Net income (loss) before discontinued
   operations and cumulative effect per
   weighted average combined share | ($0.38)    | ($0.47)    | $0.07      | $0.63        | ($0.15)   
|Net income (loss) per weighted average
   combined share                                                         | $0.07      | $3.94      | ($0.41)    | ($0.34)      | $3.26     



The quarterly results of operations for Fiscal 2005 and 2004 reflect the cyclical nature of the Companies' business since land dispositions occur sporadically and do not follow any pattern during the fiscal year.  Reclassifications in operating revenues and income (loss) from continuing operations in the quarters for years ended October 31, 2005 and 2004 reflect ski operations being classified as discontinued operations, as well as the sale of Dreshertown Plaza Shopping Center in Fiscal 2004.







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14.  BUSINESS SEGMENT INFORMATION:

The following information is presented in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information."  In accordance with SFAS No. 131, the Companies' business segments were determined from the Companies' internal organization and management reporting, which are based primarily on differences in services.

The Companies and the subsidiaries, under SFAS No. 131, previously operated in four business segments, currently operate three business segments (Ski Operations was combined into Real Estate Management/Rental Operations) consisting of the following:

Real Estate Management/Rental Operations

Real Estate Management/Rental Operations consists of: investment properties leased to others located in Eastern Pennsylvania, South Carolina, Virginia and Louisiana; revenues derived from the management of investor-owned properties, principally resort homes; recreational club activities and services to the trusts that operate resort residential communities; sales of investment properties; and rental of land and land improvements, including two ski areas located in the Pocono Mountains of Northeastern Pennsylvania.

Summer Recreation Operations

Summer Recreation Operations consist of a seasonal recreational operating center located in the Pocono Mountains of Northeastern Pennsylvania, which is the Lake Mountain Sports Club.

Land Resource Management

Land Resource Management consists of land sales, land purchases, timbering operations and a construction division.  Timbering operations consist of selective timbering on our land holdings.  Contracts are entered into for parcels which have had the timber selectively marked.  We are devising a long-term plan of managed timbering whereby significant attention is given to protecting the environment and retaining the value of the land.  The construction division is responsible for the residential land development activities which include overseeing the construction of single and multi-family homes and development of infrastructure.

Funds expended to date for real estate development in Laurelwoods have been primarily for infrastructure improvements.  We are in the construction phase for 23 single family homes and the initial construction stage for 44 duplex homes.  Other expenditures for all development projects in the planning phases include fees for architects, engineers, consultants, studies and permits.

|                                                                    |             |            |           
|------------------------------------------------------------------- | ----------- | ---------- | ----------
|                                                                    | 10/31/05    | 10/31/04   | 10/31/03  
|Revenues from continuing operations:                                |             |            |           
|Real estate management/rental operations                            | $5,788,904  | $4,367,757 | 43,449,903
|Summer recreation operations                                        | 774,288     | 1,944,023  | 1,876,724 
|Land resource management                                            | 6,498,729   | 1,321,443  | 2,620,907 
|                                                                    | $13,061,921 | $7,633,223 | $7,947,534
|Gross profit (loss), excluding general and administrative expenses: |             |            |           
|Real estate management/rental operations                            | $1,180,890  | $631,867   | $368,086  
|Summer recreation operations                                        | (58,968)    | (737,950)  | 137,938   
|Land resource management                                            | 3,131,941   | 196,316    | 2,035,770 
|                                                                    | $4,253,863  | $ 90,233   | $2,541,794
|General and administrative expenses:                                |             |            |           
|Real estate management/rental operations                            | $ 688,191   | $ 521,023  | $ 458,283 
|Summer recreation operations                                        | 92,048      | 224,578    | 249,303   
|Land resource management                                            | 772,575     | 152,714    | 348,160   
|                                                                    | $1,552,814  | $ 898,315  | $1,055,746









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|                                                             |            |            |           
|------------------------------------------------------------ | ---------- | ---------- | ----------
|                                                             | 10/31/05   | 10/31/04   | 10/31/03  
|Interest and other income:                                   |            |            |           
|Real estate management/rental operations                     | $ 98,662   | $1,049,822 | $ 22,475  
|Summer recreation operations                                 | 0          | 0          | 0         
|Land resource management                                     | 41,076     | 27,142     | 0         
|                                                             | $139,738   | $1,076,964 | $22,475   
|Interest expense:                                            |            |            |           
|Real estate management/rental operations                     | $ 878,889  | $ 449,521  | $ 145,846 
|Summer recreation operations                                 | 0          | 0          | 0         
|Land resource management                                     | 15,019     | 8,968      | 1,458     
|                                                             | $893,908   | $458,489   | $147,304  
|                                                             |            |            |           
|Income (loss) from continuing operations before income taxes | $1,946,879 | ($189,607) | $1,361,219



For the fiscal years ended October 31, 2005, 2004, and 2003, no one customer represented more than 10 % of total revenues.



Identifiable assets, net of accumulated depreciation at October 31, 2005, 2004, and 2003 and depreciation expense and capital expenditures for the years then ended by business segment are as follows:



|                                         |  |                     |                      |                     
|---------------------------------------- |  | ------------------- | -------------------- | --------------------
|October 31, 2005                         |  | Identifiable Assets | Depreciation Expense | Capital Expenditures
|Real estate management/rental operations |  | $56,208,585         | $2,313,035           | $1,612,010          
|Summer recreation operations             |  | 203,603             | 58,199               | 24,834              
|Land resource management                 |  | 134,456             | 47,200               | 140,208             
|Other corporate                          |  | 570,099             | 105,942              | 128,784             
|Total                                    |  | $57,116,743         | $2,524,376           | $1,905,836          



|                                         |  |                     |                      |                     
|---------------------------------------- |  | ------------------- | -------------------- | --------------------
|October 31, 2004                         |  | Identifiable Assets | Depreciation Expense | Capital Expenditures
|Real estate management/rental operations |  | $38,173,543         | $1,977,797           | $22,656,301         
|Summer recreation operations             |  | 431,405             | 1,187,120            | 85,310              
|Land resource management                 |  | 158,802             | 45,742               | 97,897              
|Other corporate                          |  | 6,698,219           | 83,134               | 186,886             
|Total                                    |  | $45,461,969         | $3,293,793           | $23,026,394         



|                                         |  |                     |                      |                     
|---------------------------------------- |  | ------------------- | -------------------- | --------------------
|October 31, 2003                         |  | Identifiable Assets | Depreciation Expense | Capital Expenditures
|Real estate management/rental operations |  | $14,364,528         | $1,569,415           | $1,844,789          
|Summer recreation operations             |  | 10,876,228          | 402,031              | 1,707,395           
|Land resource management                 |  | 88,774              | 14,963               | 51,005              
|Other corporate                          |  | 2,630,880           | 64,454               | 30,102              
|Total                                    |  | $27,960,410         | $2,050,863           | $3,673,291          
|                                         |  |                     |                      |                     



15. CONTINGENT LIABILITIES and COMMITMENTS:



The Companies are party to various legal proceedings incidental to their business. Certain claims, suits, and complaints arising in the ordinary course of business have been filed or are possible of assertion against the Companies.  In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, which are not expected to have a material effect on the combined financial position or results of operations of the Companies.







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16.  RELATED PARTY TRANSACTIONS:



Kimco Realty Services, Inc., or Kimco, is our controlling shareholder and Kimco Realty Corporation, the parent company of Kimco, is presently providing consulting services to us.  The services are focused on land development, acquisitions and disposals.  For the fiscal years ended October 31, 2005, 2004 and 2003 Kimco was paid $200,000, $285,000 and $125,000 in consulting fees, respectively.



Kimco Realty Corporation serves as the management company for the Oxbridge Square Shopping Center, Richmond, Virginia and the Coursey Commons Shopping Center, Baton Rouge, Louisiana, effective June 2004.  A wholly owned subsidiary of Kimco Realty Corporation receives a fixed monthly fee of 4.5% of rental income on store leases.  During the fiscal years ended October 31, 2005 and 2004 that subsidiary received $81,504 and $24,600, respectively for management fees earned on the two new shopping centers.  Kimco Realty Corporation also served as the management company for the Dreshertown Plaza Shopping Center from June 2003 to March 2004 (at which point the shopping center was sold).  During its management term of Dreshertown, Kimco Realty Corporation was paid $50,977 in management fees.



Michael J. Flynn, the Chairman of our board of directors, is also the President, Chief Operating Officer and Vice Chairman of the board of directors of Kimco Realty Corporation. Michael receives an annual fee of $35,000.  In addition, Patrick M. Flynn, who serves as one of our directors and is our President and Chief Executive Officer, is the Director of Real Estate at Kimco Realty Corporation.  Patrick has received  an annual bonus of $50,000, $40,000 and $40,000 in the years ended October 31, 2005, 2004 and 2003  Finally, Milton Cooper, who serves as one of our directors, also serves as Chief Executive Officer and Chairman of the board of directors of Kimco Realty Corporation.



Amounts due to related parties total $120,836 at October 31, 2005 and $114,168 at October 31, 2004.



17. STOCK OPTIONS and CAPITAL STOCK:



During Fiscal 1998, the Companies adopted an employee stock option plan, under which an officer was granted options to purchase shares of the Companies' common stock.  The exercise price on the 35,000 options is $6.75 and the original term was extended in February 2003 to July 1, 2008.  In accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation ("FIN 44"), the extension of the life of the award requires a new measurement of compensation as if the award was newly granted.  Because the exercise price was less than the current fair market value at the date of the grant, compensation cost of $122,900, net of tax has been recognized in the combined statement of operations.



During Fiscal 2002, four corporate officers were granted stock options in varying amounts for a total of 11,000 shares, all expiring December 10, 2006.  Additionally, during Fiscal 2003, six key employees were granted stock options totaling 18,000 shares, due to expire on December 2, 2007.  During Fiscal 2004, seven key employees were granted stock options in varying amount for a total of 32,000 shares, all expiring February 2009.  During Fiscal 2005, seven key employees were granted stock options totaling 52,000 shares, which vest over three years, all expiring February 2010.







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Option activity during the years ended October 31, 2005, 2004 and 2003 is as follows:



|                                                                               |              |                                 |              |                                 |              |                                
|------------------------------------------------------------------------------ | ------------ | ------------------------------- | ------------ | ------------------------------- | ------------ | -------------------------------
|                                                                               | 10/31/05     |                                 | 10/31/04     |                                 | 10/31/03     |                                
|                                                                               | Shares       | Weighted Average Exercise Price | Shares       | Weighted Average Exercise Price | Shares       | Weighted Average Exercise Price
|Outstanding at 
   beginning of year:                                          | 96,000       | $11.62                          | 64,000       | $8.56                           | 46,000       | $7.65                          
|Granted                                                                        | 52,000       | $34.00                          | 32,000       | $17.75                          | 18,000       | $10.90                         
|Exercised                                                                      | 61,000       | $14.42                          | -            | -                               | -            | -                              
|Canceled                                                                       |              |                                 | -            | -                               | -            | -                              
|Outstanding at end
   of year                                                  | 87,000       | $23.04                          | 96,000       | $11.62                          | 64,000       | $8.56                          
|                                                                               |              |                                 |              |                                 |              |                                
|Options exercisable
   at year-end                                             | 46,440       | $13.46                          | 96,000       | $11.62                          | 64,000       | $8.56                          
|                                                                               |              |                                 |              |                                 |              |                                
|Option price range                                                             | $6.75-$34.00 |                                 | $6.75-$17.75 |                                 | $6.75-$10.90 |                                
|                                                                               |              |                                 |              |                                 |              |                                
|Weighted average
   fair value of 
   options granted 
   during year          | $15.00       |                                 | $17.64       |                                 | $8.20        |                                
|                                                                               |              |                                 |              |                                 |              |                                
|Weighted average
   grant date fair value
   of options granted
   during year | $15.70       |                                 | $17.66       |                                 | $6.69        |                                
|                                                                               |              |                                 |              |                                 |              |                                
|Weighted average 
   remaining contractual 
   life (in years)                 | 4.7          |                                 | 3.8          |                                 | 4.4          |                                



Activity related to non-vested options for the year ended October 31, 2005 is as follows:



|                                 |  |          |  |                                             
|-------------------------------- |  | -------- |  | --------------------------------------------
|                                 |  | Shares   |  | Weighted Average Grant Date Fair Value Price
|Non vested at beginning of year: |  | --       |  | --                                          
|Granted                          |  | 52,000   |  | $15.70                                      
|Vested                           |  | (11,440) |  | $15.70                                      
|Non-vested at year-end           |  | 40,560   |  | $15.70                                      









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18.  PER SHARE DATA:



Earnings per share for the years ended October 31, 2005, 2004 and 2003 are computed as follows:



|                                                                                                                                    |  |            |            |           
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ---------- | ----------
|                                                                                                                                    |  | 10/31/05   | 10/31/04   | 10/31/03  
|Net earnings (loss)                                                                                                                 |  | $1,932,000 | $6,246,107 | ($879,137)
|Weighted average combined shares of common
   stock outstanding used to compute basic 
   earnings per combined share               |  | 2,161,244  | 1,916,130  | 1,916,130 
|Additional combined common shares to be 
   issued assuming exercise of stock options,
   net of combined shares assumed reacquired |  | 45,992     | 43,793     | 19,114    
|Combined shares used to compute dilutive 
   effect  of stock option                                                                |  | 2,207,235  | 1,959,923  | 1,935,244 
|Basic earnings (loss) per combined common share                                                                                     |  | $0.90      | $3.26      | ($0.45)   
|Diluted earnings (loss) per combined common share                                                                                   |  | $0.87      | $3.19      | ($0.45)   



19.  SUBSEQUENT EVENTS:



On December 1, 2005, the Companies entered into a 28 year lease for the Jack Frost Mountain Ski Area and Big Boulder Ski Area with JFBB Ski Areas Inc., an affiliate of Peak Resorts.  Pursuant to the lease, JFBB Ski Areas will operate the ski areas and will make monthly lease payments to us during the ski season, amounting to $100,000 per month from January through April.  In addition, JFBB Ski Areas is required to make capital improvements of $5,000,000 to the two ski areas in the first three years of the lease.  Based upon the terms of the lease the Companies expect to record the transaction as a direct financing lease and accordingly has reclassified the related assets as assets held to be used.  As a result of entering into the lease agreement, the Companies have discontinued future operations from the Ski Operations segment and have reported the activity recognized for the years ending October 31, 2005, 2004 and 2003 as discontinued operations. The revenue and expenses from the leased ski areas will be included in the Real Estate Management /Rental Operations business segment.



As a result of the lease, a number of employees have severed employment and will no longer be active participants in the Companies defined benefit pension plan.  Management is working with the actuary to determine the impact on the future plan valuation.  In connection with the termination of employment of two such employees on December 1, 2005, the Company accelerated the vesting of options to purchase 9,000 shares of the Companies common stock, which were granted pursuant to Nonqualified Stock Option Grant Agreements, dated as of February 1, 2005.  These options to purchase 9,000 shares are fully vested and will expire on February 28, 2006.



On January 27, 2006, the Companies entered into an agreement with Popple Construction Company, Inc. for infrastructure improvements of a residential housing development at Boulder Lake Village, located in Lake Harmony, Pennsylvania.  The anticipated cost for the infrastructure improvements to Boulder Lake Village is approximately $2,250,000.











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Report of Independent Registered Public Accounting Firm



To Shareholders of

Blue Ridge Real Estate Company

and Big Boulder Corporation:



We have audited the accompanying combined balance sheets of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries (the Companies) as of October 31, 2005 and 2004, and the related combined statements of operations, changes in shareholders equity, and cash flows for each of the three years in the period ended October 31, 2005. These financial statements are the responsibility of the Companies management.  Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  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 combined financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries as of October 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2005 in conformity with accounting principles generally accepted in the United States of America.



As discussed in Note 2 to the combined financial statements, the Companies changed their method of accounting for deferred operating costs in 2004.



Parente Randolph, LLC

Wilkes-Barre, Pennsylvania

February 2, 2006