Table of Contents   Exhibit 13.1 PORTIONS OF 2007 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 10/31/0710/31/0610/31/0510/31/0410/31/03Revenues from continuing operations$15,585,962$13,329,620$11,682,890$7,177,910$7,947,534Net income (loss) from continuing operations$133,609($420,058)$1,025,366($515,198)$181,326Net income (loss) from continuing operations per combined share$0.05($0.17)$0.48($0.27)$0.15Net income (loss)186,227$2,831,280$1,932,000$6,246,107$ (879,137)Net income (loss) per combined share$0.08$1.17$0.90$3.26($0.45)Cash dividends per combined share00000Combined shares outstanding2,450,4242,443,0242,385,0241,916,1301,916,130Total assets$76,081,126$71,814,454$56,993,743$45,461,969$27,960,410Debt$26,465,930$22,030,700$13,149,742$15,881,808$10,990,756Shareholders' equity$38,586,859$37,845,397$33,663,614$15,769,866$ 9,523,759     1   Table of Contents   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 6 Combined Balance Sheets 17 Combined Statements of Operations 18 Combined Statements of Changes in Shareholders Equity 20 Combined Statements of Cash Flows 21 Notes to Consolidated Financial Statements 22 Report of Independent Registered Public Accounting Firm 42     2   Table of Contents   QUARTERLY FINANCIAL INFORMATION (Unaudited) The results of operations for each of the quarters in the last two years are presented below. 1st2nd3rd4thTotalYear ended 10/31/07Operating revenues$5,927,222$3,128,907$2,743,854$3,785,979$15,585,962Operating profit (loss)1,097,038(82,462)(239,196)317,2971,092,677Net income from discontinued operations52,61800052,618Net income (loss)594,025(126,839)(249,739)(31,220)186,227Net income (loss) before discontinued
   operations per weighted average 
   combined share$0.22($0.05)($0.10)($0.02)$0.05Net income (loss) per weighted average
   combined share$0.24($0.05)($0.10)($0.01)$0.08  1st2nd3rd4thTotalYear ended 10/31/06Operating revenues$1,496,504$2,194,983$4,670,530$4,967,603$13,329,620Operating (loss) profit(747,382)(576,589)674,085677,52327,637Net (loss) income from discontinued
   operations(51,633)49,5243,269,043(15,126)3,251,808Net (loss) income(598,763)(388,802)3,594,249224,5962,831,280Net (loss) income before discontinued
   operations per weighted
   average combined share($0.23)($0.18)$0.14$0.10($0.17)Net (loss) income per weighted average
   combined share($0.25)($0.16)$1.49$0.09$1.17 The quarterly results of operations for Fiscal 2007 and 2006 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 year ended October 31, 2007 and 2006 reflect ski operations being classified as discontinued operations, as well as the sale of Oxbridge Square shopping center in Fiscal 2006.     3   Table of Contents   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 28, 2008, we had 435 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 2007 and 2006. No dividends were paid on common stock in either period.  Fiscal Year 2007 HIGH LOW ASKED BID First Quarter 39.00 38.00 Second Quarter 39.00 33.95 Third Quarter 36.00 30.70 Fourth Quarter 32.75 28.25  Fiscal Year 2006 HIGH LOW ASKED BID First Quarter 38.88 37.50 Second Quarter 47.00 37.80 Third Quarter 43.00 37.55 Fourth Quarter 41.75 38.00  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.    4   Table of Contents    STOCK PERFORMANCE GRAPH The following graph compares the percentage change in the cumulative total shareholder return on the shares of common stock during the Companies five fiscal years ended October 31, 2007 with the cumulative total return of the NASDAQ Composite Index and a peer's results during such period. The company used as the peer is The St. Joe Company (JOE), which is a real estate operating company with private landholdings in the State of Florida.  The St. Joe Company engages in town and resort development, commercial and industrial development and land sales.  The St. Joe Company also has significant interest in timber.  The comparison assumes that $100 was invested at the beginning of such period in the Companies shares of common stock, in the NASDAQ Composite Index and The St. Joe Company and assumes the reinvestment of any dividends. [exhibit131annualrept002.gif]  CUMULATIVE VALUE OF $100 INVESTMENTDATEBLRGZJOENASDAQ COMPOSITE10/31/02$96$113$7910/31/03$136$128$11410/31/04$258$198$11710/31/05$353$256$12510/31/06$352$209$14010/31/07$291$132$169      5   Table of Contents   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 had been primarily focused on the promotion and maintenance of our two ski areas, our summer operations and the resort communities.  Beginning in the fiscal year ended October 31, 2001, we began to refocus our attention on the further development of our real estate holdings.  We are continuing to evaluate the feasibility of our current real estate projects based on market demand and economic conditions. We own 16,970 acres of land in Northeastern Pennsylvania.  Of these land holdings, we have designated 4,973 acres as held for development and are moving forward with obtaining various governmental approvals in connection with such development.  Management believes that our primary focus should be on the construction of single and multi-family dwellings in proximity to the Jack Frost Mountain and Big Boulder Ski Areas.  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 constructing Phase I and II of the Laurelwoods Community of single family and multi-family homes and are moving forward with plans to develop residential communities near Jack Frost and Big Boulder ski resorts.  This is part of a comprehensive plan for our core land development in and around our two ski areas. For the fiscal year ended October 31, 2008, or Fiscal 2008, we intend to continue selective sales and purchases of land, some of which may be treated as Section 1031 tax deferred exchanges under the Internal Revenue Code.  We are also taking various steps to attract new home and land sale customers.  For example, purchasers who want to purchase newly constructed single family homes in our Laurelwoods II community development and can make a down payment of at least 20%, have the option of financing their mortgage through Big Boulder Corporation with interest only payments for five years.  We are also offering to the purchasers of the Laurelwoods II single family and duplex townhomes $8,000 toward the payment of such purchasers closing costs, prepaid dues for one year membership with the Lake Mountain Club and complimentary passes to the Jack Frost National Golf Course.  We are also offering to pay six months of homeowners association fees on behalf of any current homeowner in the Blue Heron, Midlake Condominium, Laurelwoods Community and Snow Ridge Village developments that provide a purchaser referral which results in the sale of a Laurelwoods II single family home.  We are also offering financing opportunities for the purchase of selected tracts of land. We also generate revenue by the selective timbering of our land.  The selection of parcels is based upon our current real estate development activities. The Jack Frost National Golf Course opened the first nine holes for resort play on April 20, 2007, followed by the remaining nine holes on May 18, 2007.  Construction of the temporary clubhouse has been completed and opened to guests on August 11, 2007. We are in various stages of approval for the community surrounding the Jack Frost National Golf Course.  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.    6   Table of Contents   We currently operate two real estate sales offices.  Jack Frost-Big Boulder Real Estate is located in Lake Harmony, Pennsylvania and markets new and previously owned homes in and around the Jack Frost Mountain and Big Boulder Ski Areas, primarily to buyers seeking a second home.  The Stoney Run Realty office located in Stroudsburg, Pennsylvania offers custom-built, single family homes in the Pocono region.  These homes primarily attract customers from nearby metropolitan areas in Pennsylvania, New York and New Jersey.  All of these custom-built homes are built by our construction division, Moseywood Construction Company. As a result of the Companies continued focus on real estate activities, at October 31, 2006 we changed the presentation of our balance sheet to an unclassified presentation using the alternate format in order to reflect our assets and liabilities in order of their importance. Recent Developments On October 12, 2007, Blue Ridge sold the property located at the northwest corner of the intersection of Route 940 and Route 115 in Blakeslee for $750,000. The Jack Frost Sewer treatment plant upgrade is nearing completion. The plants capacity to treat wastewater will be increased from 100,000 gallons per day to 400,000 gallons per day. The anticipated cost of this project is approximately $2,200,000.  This increase in capacity is intended to service future development sites surrounding Jack Frost National golf course and Jack Frost Mountain Ski Area. Management is currently evaluating the timing of installation of a water system and related infrastructure improvements to service Boulder Lake Village and additional future residential development sites surrounding Big Boulder Lake.  This project will include the installation of a water tower together with improvements for sewer lines, roads and storm water management. Four duplex homes of the 44 planned duplex units in the Laurelwoods II community have been completed and are currently listed for sale.  One unit is set up as a model with furnishings.  There is currently one agreement of sale in place for a duplex unit, construction of which has not yet started.  We are accepting reservations for the 39 remaining planned duplex units. Construction is currently in progress for the condominium project known as Boulder Lake Village, Building J which is comprised of 18 units.  The estimated completion date is July 2008.  We have placed a temporary sales information center on site, which has been staffed to accommodate walk-in customers interested in purchasing a condominium unit.  This office will supplement the existing Northeast Land Company sales office located at the entrance to Big Boulder Lake and the Big Boulder Ski Area.  We are currently accepting reservations for these condominium units. As of October 31, 2007, Moseywood Construction Company completed and closed on 38 homes since it commenced operations and



had

approximately

23

 custom home

s

in various stages of construction. Due to the recent decline in the housing market nationwide, the Companies continue to monitor the progress of residential home sales within the northeast region and are moving ahead cautiously with real estate operations. The Companies continue to research income producing investment properties for potential acquisition. 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, net investment in direct financing leases, the valuation of land development costs and long-lived assets, and revenue recognition.    7   Table of Contents   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. We 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 No. 66) using the full accrual method.  The full accrual method is appropriate at closing when the sales contract has been signed, the buyer has arranged permanent financing and the risks and rewards associated with ownership have been transferred to the buyer.  In the few instances that the Companies finance the sale, more than 20% down payment is required.  The remaining financed purchase price is not subject to subordination.  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. We recognize revenue on custom home construction in accordance with SFAS No. 66.  Under the provisions of SFAS No. 66, revenues and costs are recognized using the percentage of completion method of accounting when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery, the sales proceeds are collectible and the aggregate sales proceeds and the total cost of the project can be reasonably estimated.  Total estimated revenues and construction costs are reviewed periodically, and any change is applied prospectively. 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 and the net investment in direct financing leases, like-kind exchanges of assets, net operating losses, stock options and accruals.  Valuation allowances are established, when necessary to reduce tax assets to the amount expected to be realized. We have capitalized as the net investment in direct financing leases, that portion of the leased premises pertaining to Jack Frost Mountain and Big Boulder Ski Areas, which met the criteria for accounting for a portion of the lease transactions as direct financing leases.  The accounting was based on estimates and assumptions about the fair values and estimated useful lives of the leased properties, as well as, the collectibility of lease payments and recoverability of the unguaranteed residual value of the leased properties.  We will periodically review the net investment in direct financing leases for events or changes in circumstances that may impact collectibility, and recoverability of the unguaranteed residual value of leased properties. 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.  Revenue is recognized upon signing of the closing documents.  At closing a binding contract is in effect, the buyer has arranged for permanent financing and the Companies are assured of payment in full.  Also at the time of closing, the risks and rewards associated with ownership have been transferred to the buyer.  Selling expenses are charged against income in the period incurred. Long-lived assets, namely properties, are 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    8   Table of Contents   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 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. Deferred income consists of dues, rents and deposits on land or home sales. Rents that are not yet earned are related to our commercial properties that have been paid in advance, and dues are related to memberships in our hunting and fishing clubs and golf course memberships paid in advance. We recognize revenue related to the hunting and fishing clubs and golf course memberships over the one-year period that the dues cover.  We recognize revenue related to the fishing club over a five 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 2007 VERSUS FISCAL 2006 Net Income For Fiscal 2007, we reported net income of $186,227, or $.08 per combined share, as compared with a net income of $2,831,280, or $1.17 per combined share for Fiscal 2006. Revenues Combined revenue of $15,585,962 represents an increase of $2,256,342, or 17% compared to $13,329,620 for Fiscal 2006.   Real Estate Management Operations/Rental Operations revenue increased $215,840, or 2%, when compared to Fiscal 2006.   Summer Recreation Operations increased $375,702, or 184%.   Land Resource Management revenue increased $1,664,800, or 46%. Real Estate Management/Rental Operations The Real Estate Management Operations/Rental Operations had revenue of $9,695,116 in Fiscal 2007 as compared to $9,479,276 in Fiscal 2006, which resulted in an increase of $215,840, or 2%. This was primarily attributable to an increase in rental operation revenue, an increase in new home construction revenue, off set by a decrease in our resort communities rental management program revenue. For fiscal 2007 the rental operations revenue was $2,641,205 as compared to $1,626,195 for an increase of $1,015,010 or 62%. This increased rental operation revenue was primarily the result of the acquisition of three commercial retail investment properties in the fourth quarter of Fiscal 2006. For Fiscal 2007 new home construction revenue was $5,935,442 as compared to $5,575,509 for Fiscal 2006 which resulted in an increase of $359,933 or 7%. The rental management program revenue for Fiscal 2007 was $1,373 as compared to $1,038,297 for Fiscal 2006 for a decrease of $1,036,924. This was the result of the leasing of our resort communities rental management program to a third party operator in the first quarter of Fiscal 2007.    9   Table of Contents   Summer Recreation Operations In Fiscal 2007, Summer Recreation Operations had revenue of $580,328 as compared to $204,626 for Fiscal 2006, which represents an increase of $375,702. This increase is mainly attributable operating revenues of the Jack Frost National Golf Course which began operations in April 2007 offset by the Lake Mountain Club operation which has been leased to a third party operator. Operating revenues at the golf course include amounts recognized as membership fees and dues as well as greens fees and other charges.  For Fiscal 2007, Jack Frost National Golf Course revenue was $580,328 as compared to $0 for Fiscal 2006. Lake Mountain Club revenue for Fiscal 2007 was $0 as compared to $204,626 for Fiscal 2006. Land Resource Management In Fiscal 2007, Land Resource Management had revenue of $5,310,518 as compared to $3,645,718 for Fiscal 2006, which represents an increase of $1,664,800, or 46%. In Fiscal 2007, sales of 41 acres of land, two commercial investment properties and one investment resort property generated revenues of $2,120,167, as compared to Fiscal 2006, when sales of 260 acres of land and one company-owned investment property generated $1,926,377 in revenue. This represents an increase of $193,370, or 10% for Fiscal 2007 as compared to Fiscal 2006. Real Estate Development revenue in Fiscal 2007 was $2,653,429 as compared to $1,513,670 revenue recognized in Fiscal 2006 for an increase of $1,139,489, or 75%. This increase was the result of the sale of 7 single family homes for Fiscal 2007 as compared to the sale of 4 single family homes in Fiscal 2006 all of which were located in the Laurelwoods residential community. To date approximately 5% of our 16,983 acres have been marked for timbering. A forester has been hired to generate a long-term plan of managed timbering that will pay significant attention to protecting the environment and retaining the value of the land. In Fiscal 2007, timber sales were $536,922, as compared to Fiscal 2006, which generated $205,671 of revenue, an increase of $331,251. Operating Costs Real Estate Management/Rental Operations Operating costs associated with Real Estate Management Operations/Rental Operations for Fiscal 2007 were $8,293,682, as compared to $9,127,308 for Fiscal 2006, which represents a decrease of $833,626, or 9%. This decrease was primarily attributable to the expenses associated with the leasing of the resort communities rental management program in November 2006 which was offset with an increase in new home construction costs. For Fiscal 2007 the operating costs of the rental management program was $35,639 as compared to $1,124,402 for Fiscal 2006 resulting in a decrease of $1,088,763.  For the Fiscal 2007 construction costs were $4,684,472 on 13 housing starts as compared to construction costs of $4,351,980 on 28 housing starts for the Fiscal 2006 resulting in an increase of $332,762 or 8%. This increase was primarily attributable to cost of construction (materials and supplies) for new and on going new home construction, inventory costs and sales expenses related to new home construction. Summer Recreation Operations Operating costs associated with Summer Recreation Operations for Fiscal 2007 were $1,082,850 as compared with $225,666 for Fiscal 2006, which represents an increase of $857,184.  For Fiscal 2007, the Jack Frost National Golf Course had operating costs of $1,050,330 as compared to $0 for Fiscal 2006. The golf course opened in April 2007. For Fiscal 2007 operating costs associated with the Lake Mountain Club at our residential communities was $32,520 as compared to $220,122 for Fiscal 2006 for a decrease of $187,602 or 82%. This was the result of the Lake Mountain Club being leased to a third party operator starting in the third quarter of Fiscal 2007. Land Resource Management Operating costs associated with Land Resource Management for Fiscal 2007 were $3,729,512 as compared with $2,299,621 for Fiscal 2006, which represents an increase of $1,429,891, or 61%. This increase is attributable to    10   Table of Contents   construction costs related to the single family residential units at Laurelwoods. Construction costs for Fiscal 2007 was $1,941,203 as compared to $1,017,102 for Fiscal 2006 for an increase of $924,101 or 91%. For Fiscal 2007, seven single family residential units were sold as compared to four single family residential units sold in Fiscal 2006. The cost of sales for land and buildings for Fiscal 2007 was $833,369 as compared to $458,767 for Fiscal 2006 resulting in an increase of $374,602 or 82%. This increase was primarily due to the sale of 41 acres and two commercial investment properties and one resort investment property in Fiscal 2007 as compared to the sale of 260 acres and one resort investment property in Fiscal 2006. General and Administration General and Administration costs for Fiscal 2007 were $1,387,241, as compared with $1,649,388 for Fiscal 2006, which represents a decease of $262,147, or 16%. This is primarily a result of reduced closing costs on financings and state capital stock tax. Other Income (Expense) Interest and Other Income was $342,693 in Fiscal 2007, as compared to $($49,788) in Fiscal 2006, an increase of $392,471. This increase is primarily attributable to interest income of $340,575 from the net financing lease of the ski areas of $310,071 and $36,767 from the financing of land sales. Interest expense for Fiscal 2007 was $1,035,761, as compared to $632,387 for Fiscal 2006, which represents an increase of $403,374, or 64%. This was primarily due to interest expense on three retail investment properties that were acquired in the fourth quarter of Fiscal 2006. Discontinued Operations Due to managements decision to enter into long-term lease agreements with a third party operator for the operation of the Companies two ski areas subsequent to the end of Fiscal 2005, the results of operations of the Ski Operations segment for Fiscal 2006 and 2005 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 for Fiscal 2007 forward are reported in the Real Estate Management/Rental Operations segment. The net income from discontinued operations for ski operations in Fiscal 2007 was $0, as compared to a net loss of ($279,938) in Fiscal 2006. The loss in Fiscal 2006 was due to a one month depreciation expense prior to the lease commencement, as well as expense recognized under FAS 123R related to the vesting of stock options for terminated employees. The net income from discontinued operations for the Oxbridge Square Shopping Center for Fiscal 2007 was $52,618, as compared to $5,610,546 for Fiscal 2006. $5,236,478 of this income in Fiscal 2006 was a result of the gain on the sale of the shopping center. Tax Rate The effective tax rate for Fiscal 2007 was 62% as compared to 39% in Fiscal 2006.  The 62% tax rate in Fiscal 2007 was due to recognizing approximately $225,000 tax effected, for the excess tax benefit of exercised stock options through the current provision in accordance with FAS 123R.  This was partially offset by the sale of property in the current year that was previously purchased in a tax deferred 1031 exchange.  The sale created a taxable gain, which resulted in the utilization of approximately $50,000 tax effected, of state net operating loss carryforwards, for which valuation allowances were provided.  The reduction of the valuation allowance reduced income tax expense.  The 39% effective tax rate in Fiscal 2006 is in line with what would be expected based on statutory rates.    11   Table of Contents   Results of Operations FISCAL 2006 VERSUS FISCAL 2005 Net Income For Fiscal 2006, we reported net income of $2,831,280 or $1.17 per combined share as compared with a net income of $1,932,000, or $.0.90 per combined share for Fiscal 2005. Revenues Combined revenue of $13,329,620 represents an increase of $1,646,730, or 14% compared to Fiscal 2005. Real Estate Management Operations/Rental Operations revenue increased $5,069,403, or 115%, when compared to Fiscal 2005.  Summer Recreation Management Operations decreased $569,662, or 74%.  Land Resource Management revenue decreased $2,853,011, or 44%. Real Estate Management/Rental Operations The Real Estate Management Operations/Rental Operations had revenue of $9,479,276 in Fiscal 2006 as compared to $4,409,873 in Fiscal 2005, which resulted in an increase of $5,069,403, or 115% that was primarily attributed to an increase in Moseywood Construction Companys custom home construction sales. Summer Recreation Operations In Fiscal 2006, Summer Recreation Operations had revenue of $204,626 as compared to $774,288 for Fiscal 2005, which represents a decrease of $569,662, or 74%.  This decrease is mainly attributable to the discontinuation of the Splatter Paintball and the Traxx Motocross operations following the Fiscal 2005 season. Land Resource Management In Fiscal 2006, Land Resource Management had revenue of $3,645,718 as compared to $6,498,729 for Fiscal 2005, which represents a decrease of $2,853,011, or 44%.  In Fiscal 2006, 260 acres of land and one company-owned investment property were sold generating $1,926,377 in revenue, as compared to Fiscal 2005 in which 2,470 acres of land and seven company-owned resort investment properties were sold generating revenue of $4,802,976. This represents a decrease of $2,876,529, or 60% for Fiscal 2006 as compared to Fiscal 2005. Real Estate Development revenue in Fiscal 2006 was $1,513,670 as compared to $1,014,271 revenue recognized in Fiscal 2005 for an increase of $499,399, or 49%. This increase was the result of the sale of four single family homes in the Laurelwoods residential community.  To date approximately 5% of our 17,020 acres have been marked for timbering.  A forester has been hired to generate a long-term plan of managed timbering that will pay significant attention to protecting the environment and retaining the value of the land.  In Fiscal 2006, timber sales were $205,671, as compared to Fiscal 2005, which generated $681,482 of revenue, a decrease of $475,811, or 70%. Operating Costs Real Estate Management/Rental Operations Operating costs associated with Real Estate Management Operations/Rental Operations for Fiscal 2006 were $9,127,308, as compared to $4,136,925 for Fiscal 2005, which represents an increase of $4,990,383, or 121%.  The increase was mainly attributable to the expenses associated with new home construction costs. For the Fiscal 2006 construction costs were $4,351,980 on 28 housing starts as compared to construction costs of $324,262 on six housing starts for the Fiscal 2005. The increase in Fiscal 2006 was also attributable to marketing costs and sales expenses related    12   Table of Contents   to new home construction and the reclassification of personnel costs from the Companies other business segments to more accurately reflect duties performed. Summer Recreation Operations Operating costs associated with Summer Recreation Operations for Fiscal 2006 were $225,666 as compared with $683,458 for Fiscal 2005, which represents a decrease of $457,792, or 67%. This decrease was due to the closing of the Splatter Paintball and the Traxx Motocross operations following the Fiscal 2005 season. Land Resource Management Operating costs associated with Land Resource Management for Fiscal 2006 were $2,299,621 as compared with $3,366,788 for Fiscal 2005, which represents a decrease of $1,067,167, or 32%. This decrease is primarily attributable to costs for land and buildings sold.  For Fiscal 2006, 260 acres of land and one resort investment property were sold as compared to 2,470 acres and seven resort investment properties sold in Fiscal 2005. Asset Impairment Loss There was no asset impairment loss in Fiscal 2006. 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 2006 were $1,649,388, as compared with $1,552,814 for Fiscal 2005, which represents an increase of $96,574, or 6%.  This is primarily a result of recognition of stock based compensation consistent with FAS 123R, that was approximately $155,000 higher in Fiscal 2006. Other Income (Expense) Interest and Other Income was ($49,788) in Fiscal 2006, as compared to $139,738 in Fiscal 2005, a decrease of $189,526, or 136%. This decrease is primarily attributable to the sale of laundry equipment to a third party operator of the accommodations rental program. Interest expense for Fiscal 2006 was $632,387, as compared to $600,479 for Fiscal 2005, which represents an increase of $31,908, or 5%. Discontinued Operations Due to managements decision to enter into long-term lease agreements with a third party operator for the operation of the Companies two ski areas subsequent to the end of Fiscal 2005, the results of operations of the Ski Operations segment for Fiscal 2006, 2005 and 2004 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 now reported in the Real Estate Management/Rental Operations segment. The net loss from discontinued operations for ski operations in Fiscal 2006 was ($279,938) as compared to a net income of $436,121 in Fiscal 2005.  This loss in Fiscal 2006 is due to one month depreciation expense prior to the lease commencement, as well as expense recognized under FAS 123R related to the vesting of stock options for terminated employees.    13   Table of Contents   The net income from discontinued operations for the Oxbridge Square Shopping Center for Fiscal 2006 was $5,610,546 as compared to $754,513 for Fiscal 2005. $5,236,478 of this income was a result of the gain on the sale of the shopping center. 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 2006 or Fiscal 2005. Tax Rate The effective Tax Rate for Fiscal 2006 was 39% and Fiscal 2005 was 24%.  The 39% effective tax rate in Fiscal 2006 is in line with what would be expected based on statutory rates.  The 24% tax rate in Fiscal 2005 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. Liquidity and Capital Resources: The Combined Statement of Cash Flows reflects net cash used in operating activities of $2,988,868 for Fiscal 2007, net cash used in operating activities of $10,351,042 for Fiscal 2006, versus net cash used in operating activities of $7,051,431 for Fiscal 2005.  The change in net cash used in operating activities for Fiscal 2007 was primarily the result of reduced land and land development costs. Material non-recurring cash items during the past three years include in Fiscal 2007, the sale of the former Burger King property for $820,000, and the sale of the Blakeslee Corners property for $750,000; the exchange of the Oxbridge Square Shopping Center for our two Walgreen retail stores, the Jack in the Box restaurant, the Flower Fields Motel and an investment property located in the resort community at the Jack Frost Mountain in Fiscal 2006;  and net proceeds of approximately $15,100,000 from the sale and issuance of shares of our common stock in Fiscal 2005. On December 11, 2006, the Companies entered into a Mortgage and Security Agreement and a $3,000,000 promissory note with State Farm F.S.B. The note is secured by a mortgage, which encumbers certain real property purchased on August 18, 2006, known as the Walgreens Store located in Dover Township, Ocean County, New Jersey.  Interest only payments are due and payable monthly until the maturity date on January 1, 2009.  The interest rate payments are calculated as LIBOR rate plus nine tenths of a percent (.90%), which equaled 6.03% at October 31, 2007. On December 15, 2006, the Companies entered into a Mortgage and Security Agreement and a $4,000,000 promissory note with State Farm F.S.B. The note is secured by a mortgage, which encumbers certain real property purchased on October 31, 2006, known as the Walgreens Store located in White Bear Lake, Washington County, Minnesota.  Interest only payments are due and payable monthly until the maturity date on January 1, 2009.  The interest rate is calculated as LIBOR rate plus nine tenths of a percent (.90%), which equaled 6.03% at October 31, 2007. On June 15, 2007, the Companies entered into a Mortgage Modification Loan Agreement and a $25,000,000 line of credit mortgage note with M & T Bank.  Under the terms of the agreement, our existing $10,000,000 line of credit with M & T Bank, originally issued on April 20, 2006, has been increased to an aggregate amount of $25,000,000.  Interest is due and payable on a monthly basis at a rate equal to LIBOR (as announced by the Wall Street Journal as of the first day of the calendar month) plus 250 basis points which equaled 7.63% at October 31, 2007. The remaining principal and any accrued but unpaid interest is due and payable on April 19, 2010.  The Companies are using $6,000,000 of this line of credit to fund construction of residential development projects.  At October 31, 2007, $1,763,290 was outstanding on this sub-limit and $1,119,250 has been paid down using the proceeds of the sale of seven single family homes in Fiscal 2007.  A total of $12,900,000 of this line of credit is used to fund site development improvements for residential developments.    14   Table of Contents   At October 31, 2007, $4,826,733 was outstanding on this sub-limit and $140,000 has been paid down using the proceeds of the sale of two single family homes. The remaining $6,100,000 of this line of credit is used to fund the expansion of the water and sewer systems at both Big Boulder and Jack Frost Mountain Ski Areas in order to accommodate the new construction.  At October 31, 2007, $1,686,510 was outstanding on the $6,100,000 sub-limit.  The term on this sub-limit is two years with interest only payments due until the maturity date after which time the Companies plan to seek a term mortgage note. The total principal amount outstanding under the line of credit will not exceed the lesser of (a) $25,000,000, or (b) 80% of the cost or appraised value of the units. On June 15, 2007, the Companies entered into a new mortgage agreement with Manufacturers and Traders Trust Company which increased the maximum principal amount available on the Companies existing $1,000,000 letter of credit with the lender to $5,000,000.  The rate of interest is equal to one half of one percentage point (0.50%) less than the prime rate, which equaled 7.25% at October 31, 2007. There were no borrowings against the $5,000,000 line of credit in Fiscal 2007. No change was made to the existing line of credit with Manufacturers and Traders Trust Company in the amount of $3,100,000 million for general operations. During Fiscal 2007, we borrowed against our $3,100,000 million line of credit in varying amounts with a maximum amount of $3,038,475.  During Fiscal 2006, we borrowed against our $3,100,000 million line of credit in varying amounts with a maximum amount of $2,845,807. The rate of interest is one percentage point less than the prime rate, which was equal to 6.75% at October 31, 2007. For Fiscal 2007, our major capital expenditures were for the construction of Building J in the Boulder Lake Village 144 unit condominium community at Big Boulder, the completion of construction of the Jack Frost National Golf Course, and construction of four duplex units in the Woodsbluff section of the Laurelwoods II subdivision at Big Boulder. Contractual Obligations:TotalLess than 1 year1-3 years4-5 yearsMore than 5 yearsLines of Credit$2,359,391$2,359,391$0$0$0Long-Term Debt23,894,037268,83116,199,737727,0216,698,448Capital Leases212,50245,026167,47600Purchase Obligations495,828495,8280000Pension Contribution Obligations509,449509,449000Other Long-Term Obligations00000Total Contractual Cash Obligations$27,471,207$3,678,525$16,367,213$727,021$6,698,448 Purchase obligations consist of material contracts totaling $2,198,424, with six separate contractors relating to real estate development.  Payments made through October 31, 2007 total $1,702,596. 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 market risk associated with changing economic conditions.    15   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, 2007, our variable rate indebtedness represented 68% of our total debt outstanding.  Our average interest rate is based on our various credit facilities and our market risk exposure fluctuates based on changes in underlying interest rates.  We do not believe that the interest rate risk associated with our variable rate debt could have a material impact on the combined financial statements.  The fixed and variable debt is detailed as follows: Long-term debt:TotalLess than 1 year1-3 years4-5 yearsMore than 5 yearsFixed rate$8,441,268$258,975$926,039$617,260$6,638,994Average interest rate7.67%7.75%8.18%5.61%Variable rate18,024,6622,414,27315,441,174109,761$59,454Average interest rate7.42%$26,465,930$2,673,248$16,367,213$727,021$6,698,448 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 June 2006, Financial Accounting Standards Board (FASB) issued FIN 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN No. 48).  FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes.  FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Companies are required to apply FIN No. 48 for the fiscal year beginning November 1, 2007.  The Companies do not expect to recognize a material adjustment to liabilities for unrecognized income tax benefits upon adoption. In September 2006, FASB issued Statement No. 157 Fair Value Measurements, (SFAS No. 157).  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.  SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.  Accordingly, FASB No. 157 does not require any new fair value measurements.  The Companies are required to apply SFAS No. 157 in the fiscal year beginning after November 15, 2007.  The Companies are still assessing the impact of adopting SFAS No. 157 on its financial position and results of operations.    16   Table of Contents   BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES AND BIG BOULDER CORPORATION and SUBSIDIARIES   COMBINED BALANCE SHEETS October 31, 2007 and 2006  ASSETS10/31/0710/31/06Land and land development costs (4,973 and 5,004,  
      respectively, acres per land ledger)$19,799,822$27,950,669Land improvements, buildings & equipment, net29,198,44825,117,658Land held for investment, (11,496 and 11,503, respectively,
      acres per land ledger)7,616,1048,011,995Land held for recreation (514 and 514, respectively, 
      acres per land ledger)8,693,86065,087Net investment in direct financing leases8,341,3798,361,575Cash and cash equivalents201,782153,742Prepaid expenses and other assets1,645,1311,297,135Accounts receivable and mortgages receivable584,600856,593$76,081,126$71,814,454  LIABILITIES AND SHAREHOLDERS EQUITY10/31/0710/31/06LIABILITIES:Debt$26,465,930$22,030,700Accounts payable1,415,5431,811,335Accrued liabilities554,420918,412Deferred income783,407888,851Amounts due to related parties48,95966,460Deferred income taxes7,625,0007,694,800Accrued pension expense601,008558,499Total liabilities37,494,26733,969,057Commitments and contingenciesCOMBINED SHAREHOLDERS EQUITY:Capital stock, without par value, stated value $0.30 per
     combined share, Blue Ridge and Big Boulder each
     authorized 3,000,000 shares, each issued 2,732,442 and
     2,725,042 shares, respectively819,731817,511Capital in excess of stated value19,659,43018,920,297Earnings retained in the business20,482,68820,296,461Accumulated other comprehensive loss(289,583)(103,465)40,672,26639,930,804Less cost of 282,018 shares of capital stock in treasury2,085,4072,085,407Total shareholders equity38,586,85937,845,397$76,081,126$71,814,454  The accompanying notes are an integral part of the combined financial statements.    17   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, 2007, 2006 and 2005  10/31/0710/31/0610/31/05Revenues:Real estate management$7,140,631$7,853,081$3,099,585Summer recreation operations580,328204,626774,288Land resource management5,310,5183,645,7186,498,729Rental income2,554,4851,626,1951,310,28815,585,96213,329,62011,682,890Costs and expenses:Real estate management6,984,1277,617,0423,330,173Summer recreation operations1,082,850225,666683,458Land resource management3,729,5122,299,6213,366,788Rental income1,309,5551,510,266806,752General and administration1,387,2411,649,3881,552,814Asset impairment loss00149,79814,493,28513,301,9839,889,783Operating profit1,092,67727,6371,793,107Other income (expense):Interest and other income (expense)342,693(49,778)139,738Interest expense  (net of capitalized interest of$531,444 in 2007, $205,053 in 2006 and 
        $102,929 in 2005)(1,035,761)(632,387)(600,479)(693,068)(682,165)(460,741)Income (loss) from continuing operations before income taxes399,609(654,528)1,332,366Provision (credit) for income taxes:Current208,000(146,000)8,000Deferred58,000(88,000)299,000266,000(234,000)307,000Net income (loss) before discontinued operations133,609(420,528)1,025,366Discontinued operations (including $5,236,478 gain on disposal in 2006)86,6185,330,6081,190,634Provision for income taxes on discontinued operations:Current34,000146,0000Deferred01,932,800284,00034,0002,078,800284,000Net income  from discontinued operations52,6183,251,808906,634Net income$186,227$2,831,280$1,932,000     18   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, 2007, 2006 and 2005  10/31/0710/31/0610/31/05Basic earnings per weighted average combined share:Net income (loss) before discontinued operations$0.05($0.17)$0.48Income from discontinued operations, net of tax0.031.340.42Net income$0.08$1.17$0.90Diluted earnings per weighted average combined shareNet income (loss) before discontinued operations$0.05($0.17)$0.46Income from discontinued operations, net of tax0.031.330.41Net income$0.08$1.16$0.87  The accompanying notes are an integral part of the combined financial statements.     19   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, 2007, 2006 and 2005  Capital Stock (a)Capital in Excess of Stated ParCompensation
Under Employee 
Stock PlansEarnings 
Retained in
the BusinessAccumulated Other
Comprehensive
LossCapital
Stock 
in 
Treasury(c)TotalSharesAmountBalances, October 31, 20042,198,148$659,444$1,461,748$200,900$15,533,181($2,085,407)$15,769,866Comprehensive income:Net income1,932,0001,932,000Other comprehensive loss ,Additional minimum 
     pension liability adjustment,
     net of deferred tax
     benefit of $37,000(54,500)(54,500)1,877,500Issuance of common stock407,894122,36715,014,180(b)15,136,547Exercise of stock options61,00018,300861,401879,701Balances, October 31, 20052,667,042800,11117,337,329200,90017,465,181($54,500)(2,085,407)33,663,614Comprehensive income:Net income2,831,2802,831,280Other comprehensive loss,Additional minimum 
     pension liability adjustment,
     net of deferred tax
     benefit of $45,000(48,965)(48,965)2,782,315Reclassification of 
   compensation recognized 
   under employee stock plan200,900(200,900)0Compensation recognized
   under employee stock plan381,218381,218Exercise of stock options58,00017,4001,000,8501,018,250Balances, October 31, 20062,725,042817,51118,920,297020,296,461(103,465)(2,085,407)37,845,397Comprehensive income:Net income186,227186,227Other comprehensive loss:Additional minimum 
     pension liability 
     adjustment, net of 
     deferred tax expense
     of $82,000103,465103,465Cumulative effect of
     adoption of FAS 158,
     net of deferred tax
     benefit of $209,176(289,583)(289,583)109Compensation recognized
   under employee stock plan263,940263,940Excess tax benefit on 
exercise of employee
stock options225,813225,813Exercise of stock options7,4002,220249,380251,600Balances, October 31, 20072,732,442$819,731$19,659,430$0$20,482,688($289,583)($2,085,407)$38,586,859 (a) Capital stock, at stated value of $.30 per combined share (b) net of issuance costs of $363,424 (c) 282,018 shares held in treasury, at cost at October 31, 2007, 2006, and 2005  The accompanying notes are an integral part of the combined financial statements.    20   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, 2007, 2006 and 2005  10/31/0710/31/0610/31/05Cash Flows Used In Operating Activities:Net income$186,227$2,831,280$1,932,000Adjustments to reconcile net income to net cash used in 
          operating activities:Depreciation1,178,6141,081,2352,524,376Asset impairment loss00149,798Deferred income taxes58,0001,844,800583,000Gain on sale of assets(2,118)(5,121,306)(7,767)Compensation cost under employee stock plans263,940381,2180Changes in operating assets and liabilities:Accounts receivable and mortgages receivable271,993(171,408)121,794Prepaid expenses and other current assets(347,997)(160,732)357,174Land and land development costs(3,443,389)(10,900,334)(12,522,398)Accounts payable and accrued liabilities(1,048,695)(269,809)319,024Deferred income(105,443)134,014(508,432)Net cash used in operating activities(2,988,868)(10,351,042)(7,051,431)Cash Flows Used In Investing Activities:Proceeds from disposition of assets2,65010,834,2721,275,143Additions to properties(1,554,955)(16,138,780)(1,905,836)Payments received under direct financing lease arrangements20,196232,0000Cash held in escrow00134,907Net cash used in investing activities(1,532,109)(5,072,508)(495,786)Cash Flows Provided By Financing Activities:Proceeds from debt21,801,84822,574,46811,614,291Payment of debt(17,584,251)(9,849,130)(18,339,357)Deferred financing costs(125,993)00Proceeds from issuance of common stock0015,136,547Proceeds from exercise of stock options251,6001,018,250879,701Excess tax benefit from exercised options225,81300Net cash provided by financing activities4,569,01713,743,5889,291,182Net increase (decrease) in cash and cash equivalents48,040(1,679,962)1,743,965Cash and cash equivalents, beginning153,7421,833,70489,739Cash and cash equivalents, end$201,782$153,742$1,833,704Supplemental disclosures of cash flow information:Cash paid during the year for:Interest$1,662,053$1,047,936$1,068,945Income taxes$69,529$355,845$89,250Supplemental disclosure of non cash investing and financing activities:Additions to property acquired through capital lease obligations$217,634$0$0Seller financed property additions$0$3,844,380$0Reclassification of golf course assets from land development
     costs to land held for recreation and land improvements,
     buildings and equipment$11,594,236  The accompanying notes are an integral part of the combined financial statements     21   Table of Contents   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., Blue Ridge Acquisition Company, BRRE Holdings, Inc., Coursey Commons Shopping Center, LLC, Coursey Creek, LLC, Cobble Creek, LLC and Flower Fields Motel, LLC and Big Boulder Corporation (Big Boulder) and its wholly-owned subsidiaries, Lake Mountain Company and BBC Holdings, Inc., collectively (the Companies).  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. Generally, revenues are recognized as services are performed. Timbering Revenues: 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) using the full accrual method.  The full accrual method is appropriate at closing when the sales contract has been signed, the buyer has arranged permanent financing and the risks and rewards associated with ownership have been transferred to the buyer.  In the few instances that the Companies finance the sale, more than 20% down payment is required.  The remaining financed purchase price is not subject to subordination. 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. Custom Home Construction: The Companies recognize revenue on custom home construction in accordance with Financial Accounting Standards Board (FASB) No. 66, Accounting for Sales of Real Estate (SFAS No. 66).  Under the provisions of SFAS No. 66, revenues and costs are recognized using the percentage of completion method of accounting when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery, the sales proceeds are collectible and the aggregate sales proceeds and the total cost of the project can be reasonably estimated.  Total estimated revenues and construction costs are reviewed periodically, and any change is applied prospectively.    22   Table of Contents   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.  Revenue is recognized upon signing closing documents.   At closing a binding contract is in effect, the buyer has arranged for permanent financing and the Companies are assured of payment in full.  Also at this time, the risks and rewards associated with ownership have been transferred to the buyer.  Selling expenses are charged against income in the period incurred. 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.  An allowance for doubtful accounts, if deemed necessary, 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.  Mortgages receivables were $250,864 and $261,388 at October 31, 2007 and 2006, respectively. Land Improvements, Buildings, Equipment and Depreciation: Land improvements, buildings and equipment 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 3-40 Equipment and furnishings 3-20 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. Deferred Income: Deferred income consists of dues, rents and deposits on land or home sales. Rents that are not yet earned relate to the Companies commercial properties that have been paid in advance, and dues are related to memberships in the Companies hunting and fishing clubs and golf club memberships paid in advance. The Companies recognize revenue related to the hunting and fishing clubs and golf course memberships over the one-year period that the dues cover.  The    23   Table of Contents   Companies recognize revenue related to the fishing club over a 5 month period, May through September.  Deposits are required on land and home sales. Also included in deferred income are amounts received under a contract with the Pennsylvania Department of Transportation for reimbursement of the cost of a constructed asset.  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. 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.  For federal income tax purposes, Blue Ridge, and its subsidiaries, and Big Boulder, and its subsidiaries, each file as consolidated entities. State income taxes are reported on a separate company basis. 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 and the net investment in direct financing leases, like-kind exchanges of assets, net operating losses, stock options and accruals.  Valuation allowances are established, when necessary to reduce tax assets to the amount expected to be realized. Investment in Direct Financing Leases: The Companies have capitalized as the net investment in direct financing leases, that portion of the leased premises pertaining to Jack Frost Mountain and Big Boulder ski areas, which met the criteria for accounting for a portion of the lease transactions as direct financing leases.  The accounting was based on estimates and assumptions about the fair values and estimated useful lives of the leased properties, as well as the collectibility of lease payments and recoverability of the unguaranteed residual value of the leased properties.  Management periodically reviews the net investment in direct financing leases for events or changes in circumstances that may impact collectibility, and recoverability of the unguaranteed residual value of leased properties. Advertising Costs: Advertising costs in the fiscal year ended October 31, 2007, or Fiscal 2007, are primarily related to new home construction and real estate development.  Prior to Fiscal 2006, advertising costs were primarily related to ski operations.  Advertising costs are expensed when incurred and the advertising expense for Fiscal 2007, 2006 and Fiscal 2005 was $413,604, $379,927, and $1,133,715 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, net investment in direct financing leases, 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    24   Table of Contents   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. 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 Per Share: Basic earnings per share is calculated based on the weighted-average number of shares outstanding.  Diluted earnings 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 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.  Financial information about our segments can be found in Note 16. Stock Compensation: Effective for the quarter ended January 31, 2006 and thereafter, the Companies adopted SFAS No. 123R, Share-Based Payment, in accounting for its employee stock options.  SFAS No. 123R requires the Companies to recognize as compensation expense an amount equal to the grant date fair value of the stock options issued over the required service period.  Compensation cost was measured using the modified prospective approach provided under SFAS No. 123R and, consequently, the Companies have not retroactively adjusted results from prior periods. The fair value of each option award is estimated at the date of grant using a Black-Scholes option pricing model.  Expected volatilities are based upon historical volatilities of the Companies stock.  The Companies use historical data to estimate option exercises and employee terminations with the valuation model.  The expected term of options granted is derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding.  The risk-free rate for periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Prior to the quarter ended January 31, 2006, the Companies applied 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 fair market value of the Companies' underlying stock on the date of the grant, no compensation expense is recognized.    25   Table of Contents   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: 10/31/0710/31/0610/31/05Net income, as reported$186,227$  2,831,280$  1,932,000Add: Stock-based employeecompensation expense included inreported net  income, net of tax benefit100,297232,543--Deduct: Total stock-based employeecompensation expense determinedunder fair value based method forall awards, net of tax expense(55,916)(230,656)(113,256)Pro forma net income$230,608$  2,833,167$  1,818,744Basic earnings per share:As reported$0.08$1.17$0.90Pro forma$0.09$1.17$0.84Diluted earnings per share:As reported$0.08$1.16$0.87Pro forma$0.09$1.16$0.82 Reclassification: Certain amounts in the 2006 and 2005 combined financial statements have been reclassified to conform to the 2007 presentation. New Accounting Pronouncements: In June 2006, Financial Accounting Standards Board (FASB) issued FIN 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN No. 48).  FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes.  FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Companies are required to apply FIN No. 48 for the fiscal year beginning November 1, 2007.  The Companies do not expect to recognize a material adjustment  to deferred income taxes upon adoption. In September 2006, FASB issued Statement No. 157 Fair Value Measurements, (SFAS No. 157).  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.  SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.  Accordingly, FASB No. 157 does not require any new fair value measurements.  The Companies are required to apply SFAS No. 157 in the fiscal year beginning after November 15, 2007.  The Companies are still assessing the impact of adopting SFAS No. 157 on its financial position or results of operations.    26   Table of Contents   2.  CHANGE IN ACCOUNTING PRINCIPLE: In 2007, the Company adopted Financial Accounting Standards Board (FASB), Statement of Financial Accounting Standards No. 158 (SFAS 158), Employers Accounting for Defined Benefit Pension and Other Postretirement Plans.  SFAS 158 requires, among other things, that an employer recognize the funded status of a defined benefit pension plan in its balance sheet. The funded status is measured as the difference between plan assets at fair value and the projected benefit obligation. SFAS 158 also requires the measurement of plan assets and obligations as of the employers fiscal year end, for which the Companies already comply. Changes in the funded status will be recognized through a change in accumulated other comprehensive income in the year in which the change occurs. Amounts recognized in the balance sheet, including the gains or losses, prior service costs or credits, and the transition asset or obligation remaining from the initial application of SFAS 87, Employers Accounting for Pensions, are adjusted as they are subsequently recognized as components of net periodic pension cost pursuant to the recognition and measurement provisions of SFAS 158. The Company implemented the recognition and disclosure provisions of SFAS 158 as of October 31, 2007. The incremental effects of adopting SFAS 158 on individual line items in the consolidated balance sheet were to increase accrued pension expense by $498,759, to decrease deferred tax liabilities by $209,176, and to increase accumulated other comprehensive loss and decrease total stockholders equity by $289,583 as of October 31, 2007. 3.  DISCONTINUED OPERATIONS: On June 16, 2006, the Oxbridge Square shopping center was sold as a Section 1031 tax deferred exchange and as a result the operating activity for the years ending October 31, 2007, 2006 and 2005 is being reported as a discontinued operation.  The operating results of the Oxbridge Square shopping center were previously reported in the Rental Income segment of the combined statement of operations.  At October 31, 2007, there were no remaining assets or liabilities related to Oxbridge Square shopping center. On 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.  As a result the Companies have reported the activity recognized for the years ending October 31, 2006 and 2005 as a discontinued operation. Operating results, including interest expense incurred, of the discontinued operations in Fiscal years 2007, 2006 and 2005 are as follows: 200720062005Revenues:Oxbridge Square$86,720$844,426$1,379,031Ski0010,163,221Total Revenue86,720844,42611,542,252Expenses (excluding interest):Oxbridge Square102290,965471,089Ski0279,9389,572,767Total Expenses102570,90310,043,856Interest (calculated on debt related to the property):Oxbridge Square0179,393293,428Ski0014,334Total Interest0179,393307,762Gain on Disposal:Oxbridge Square05,236,4780Income from discontinued operations before income taxes$86,618$5,330,608$1,190,634    27   Table of Contents   4.  CONDENSED FINANCIAL INFORMATION: Condensed financial information of the Companies, Blue Ridge and its subsidiaries and Big Boulder and its subsidiaries, at October 31, 2007, 2006 and 2005 and for each of the years then ended is as follows: Blue Ridge and Subsidiaries10/31/0710/31/0610/31/05FINANCIAL POSITION:Total assets$59,410,723$55,431,276$42,729,408Total liabilities34,896,68131,266,58022,357,723Shareholders' equity24,514,04224,164,69620,371,685OPERATIONS:Revenues12,522,27910,924,5219,886,373Income (loss) from continuing 
   operations and before taxes393,175(613,563)1,527,264Provision (credit) for income
   taxes200,882(219,366)351,908Net income244,911$2,951,633$1,629,212  Big Boulder and Subsidiaries10/31/0710/31/0610/31/05FINANCIAL POSITION:Total assets$16,670,403$16,383,178$14,264,335Total liabilities2,597,5862,702,477972,406Shareholders' equity14,072,81713,680,70113,291,929OPERATIONS:Revenues3,063,6832,405,0991,796,517Income (loss) from continuing 
   operations and before taxes6,434(40,965)(194,898)Provision (credit) for income 
   taxes65,118(14,634)(44,908)Net (loss) income(58,684)($120,353)$302,788 5.  LAND AND LAND DEVELOPMENT COSTS: Land and improvements in progress held for development consists of the following: 10/31/200710/31/2006Land unimproved designated for development$596,931$585,731Golf course development387,4029,967,411Residential development5,755,3795,221,410Infrastructure development13,060,11012,176,117$19,799,822$27,950,669 The increase in residential development was due to construction costs associated with the Woodsbluff Court duplex units ($885,313) located in the Laurelwoods II residential community and with the Boulder Lake Village condominium project ($1,279,816) located on Big Boulder Lake. Residential development (including costs for infrastructure improvements) was reduced by the sale of seven homes in the Laurelwoods II residential community ($1,631,161). The infrastructure development increase resulted from costs associated with upgrades to the Jack Frost sewage treatment plant and temporary lagoon ($1,638,884) and was reduced by the sale of seven homes in the Laurelwoods II residential community ($273,823). The decrease in Golf Course development was the result of the reclassification of costs to land held for recreation ($8,629,412) and land improvements and equipment ($950,597) when the golf course was opened to the public in May 2007.  The balance remaining in golf course development represents construction in progress on the permanent clubhouse and the driving range.    28   Table of Contents   6.  LAND: 10/31/200710/31/2006Land held for investmentLand  Unimproved$1,752,679$2,148,570Land  Commercial rental properties5,863,4255,863,425$7,616,104$8,011,995Land held for recreationLand  Golf course$8,656,154$27,381Land  Ski areas37,70637,706$8,693,860$65,087 During the year ended October 31, 2007 when the golf course opened for operation, we reclassified both golf course and ski areas land from Land held for investment to Land held for recreation to better reflect the Companies business operations. Land held for investment decreased $395,891 primarily as a result of the sale of the property located at the intersection of Routes 940 and 115 in Blakeslee, Pennsylvania. 7.  DEBT: Debt as of October 31, 2007 and 2006 consists of the following: 10/31/0710/31/06Mortgage note payable to insurance company, interest fixed at 10.5% payable in monthly installments of $15,351 including interest through Fiscal 2014$833,618$925,014Mortgage notes payable to bank, interest at LIBOR plus .9% (6.03% at October 31, 2007.)  Interest-only monthly payments through January 2009.7,000,0000Mortgage notes payable to bank, interest at the banks prime rate (7.75% at October 31, 2007) payable in monthly installments of $4,573 through Fiscal 2014.388,737553,689Mortgage note payable to bank, interest fixed at 5.59% payable in monthly installments of $44,156 including interest through Fiscal 2035.7,395,1487,502,562Construction, site development, and water/sewer expansion line of credit mortgage note payable to bank, interest at LIBOR plus 250 basis points (7.63% at October 31, 2007) payable in installments due at the closing of each unit within the developmentthrough April 2010.8,276,5336,461,714Revolving line of credit payable to bank, interest at the banks prime rate less 100 points (6.75% at October 31, 2007) payable on demand.2,359,3922,222,721Capital lease obligation payable to bank, interest fixed at 6.48%, payable in 48 monthly installments of $5,131 including interest through October 2011.212,5020Construction loan repaid in 200704,365,000$26,465,930$22,030,700 The Companies have three lines of credit with Manufacturers and Traders Trust Company (the Bank) totaling $33,100,000.  The lines are as follows:  a $25,000,000 line of credit mortgage note with sub-limits for construction, site development and water / sewer expansion, a $5,000,000 line of credit for real estate transactions and a $3,100,000 revolving line of credit for general operations. During 2007 the Companies entered into a mortgage modification agreement under which our $10,000,000 line of credit has been increased to an aggregate of $25,000,000.  The site development sub-limit has increased from $6,500,000 to $12,900,000.  The construction sub-limit has increased from $3,500,000 to $6,000,000.  And a third sub-limit of $6,100,000 was obtained for the expansion of sewer and water facilities to accommodate new construction.  At October    29   Table of Contents   31, 2007 the Companies had utilized $8,276,533 of this line which bears interest at LIBOR plus 250 basis points (7.63% at October 31, 2007). During Fiscal 2007, the real-estate line was increased from $1,000,000 to $5,000,000.  The real estate line of credit bears interest at .50% less than the prime rate (7.25% at October 31, 2007).  At October 31, 2007, the Companies had not utilized any of the real estate line of credit. At October 31, 2007 Blue Ridge had utilized $2,359,392 of the general line of credit, aggregating $3,100,000 which is an on demand line with no expiration date. The general line of credit bears interest at 1% less than the prime rate (6.75% at October 31, 2007). The weighted average interest rate for the year ended October 31, 2007 was 7.42%.  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 not met the required debt service coverage ratio at October 31, 2007.  The primary reason for default is due to an aggressive sales projection for fiscal 2007.  A new component to the debt service coverage ratio is based upon estimated sales of units and requires the Companies to make payment toward the site development sub-limit of $70,000 for every unit not sold according to the Companies estimated number of sales.   This settlement will occur the last day of December of each year.  The Companies have revised the projected 2 year sales estimate to reflect a more conservative approach.  The Companies did not reach the estimated number of sales for Fiscal 2007 due to recent market conditions and will be required to pay down $210,000.  The Companies have met the consolidated debt to worth ratio and the required tangible net worth threshold and have obtained a waiver for the debt service coverage ratio. The site development sub-limit agreement enables the Companies to issue letters of credit in amounts up to $12,900,000.  During Fiscal 2005 the Companies entered into two letters of credit with the Bank.  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 May 4, 2007 Kidder Township released the original letter of credit back to the Bank and the Companies had utilized $2,338,076 of the site development sub-limit.  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 Companies have utilized $2,628,657 of the site development sub-limit and the letter of credit was $1,202,937 as of October 31, 2007.  The aggregate amount available on the site development sub-limit as of October 31, 2007 was $6,870,330. During Fiscal 2006 the Companies entered into three letters of credit with the Bank.  The Bank agreed to issue, on the Companies behalf, irrevocable standby Letters of Credit to Kidder Township aggregating an amount not to exceed $827,068 for the purpose of guaranteeing completion of the Jack Frost National maintenance facility, the Jack Frost National site development for the temporary clubhouse and infrastructure improvements to the Kresge Lane real estate subdivision located along Route 940.  During fiscal 2007 the letters of credit on the Jack Frost National maintenance facility and infrastructure improvements to the Kresge Lane real estate subdivision have been released by Kidder Township.  The letter of credit on the Jack Frost National site development for the clubhouse has been renewed until May 25, 2008 in the amount of $78,318.  The existing Letter of Credit is part of, and reduces availability under the $3,100,000 general operating line of credit. During Fiscal Year 2007 the Companies entered into two mortgage and security agreements with State Farm F.S.B. totaling $7,000,000.  The $3,000,000 mortgage encumbers certain real property known as the Walgreens store located in Toms River, NJ.  The $4,000,000 mortgage encumbers certain real property known as the Walgreens store located in White Bear, MN.  Both mortgages have interest only due until the maturity date of January 1, 2009 and bear interest at LIBOR plus .9% (6.03% at October 31, 2007.) On October 25, 2007, the Companies entered into a capital lease agreement with the Bank for a modular Pro Shop at Jack Frost National Golf Course.  The capital lease is payable in 48 monthly installments of $5,131 and bears interest at a fixed rate of 6.48%.  The capital lease will be paid in full in October 2011.    30   Table of Contents   Properties at cost, which have been pledged as collateral for debt, include the following at October 31, 2007: Investment properties leased to others$2,190,470Assets subject to direct financing lease arrangements (ski facilities)$18,093,037 The aggregate amount of long-term debt maturing in each of the five years and thereafter ending subsequent to October 31, 2007, is as follows:  2008 - $2,673,248;  2009 - $15,616,527;    2010 - $362,891;   2011-$387,795; 2012-$350,356;  thereafter $7,075,113. 8.  INCOME TAXES: The provision (credit) for income taxes from continuing operations is as follows: 10/31/0710/31/0610/31/05Currently payable:Federal$207,000($146,000)$0State1,00008,000208,000(146,000)8,000Deferred:Federal(1,000)(59,000)433,000State59,000(29,000)(134,000)58,000(88,000)299,000Total$266,000($234,000)$307,000 A reconciliation between the amount computed using the statutory federal income tax rate and the actual provision (credit) for income taxes is as follows: 10/31/0710/31/0610/31/05Computed at statutory rate$135,867($222,447)$453,004Benefit of state net operating losses, not previously recognized(71,500)0(124,686)State income taxes, net of federal income tax39,000(19,026)(83,160)Nondeductible expenses1,0003,12963,508Excess tax benefit on exercise of stock options225,81300Over accrual of prior year estimate(53,432)00Other(10,748)4,344(1,666)Provision (credit) for income taxes from continuing operations$266,000($234,000)$307,000 The components of the deferred tax assets and liabilities as of October 31, 2007 and 2006 are as follows: 10/31/0710/31/06Deferred tax assets:Accrued expenses$41,000$28,000Deferred income211,000236,000Additional minimum pension liability202,00082,000AMT credit carryforward332,000317,000Net operating losses2,210,0001,674,400Valuation allowance(1,397,000)(1,245,700)Contribution carryforward72,00069,000Stock options95,000152,000Deferred tax asset1,766,0001,312,700Deferred tax liability,Depreciation9,391,0009,007,500Deferred income tax liability, net$7,625,000$7,694,800 At October 31, 2007, the Companies have $332,000 of Alternative Minimum Tax (AMT) credit carryforward available to reduce future income taxes.  The AMT credit has no expiration date.    31   Table of Contents   At October 31, 2007, the Companies have available approximately $2,389,000 of federal net operating losses which will expire from 2022 to 2026. The Companies also have state net operating loss carryforwards of approximately $13,981,000 that will expire from 2019 to 2026.  The Companies have recorded a valuation allowance against state net operating losses, which are not expected to be utilized. 9.  PENSION BENEFITS: The Companies sponsor a defined benefit pension plan.  Employees become eligible to participate in the plan on the first day of the month following one year of employment provided they completed 1,000 hours of service.  The plan is frozen to new entrants hired on or after September 1, 2002.  Benefits under the plan are based on average compensation and years of service.  The Companies funding policy is to contribute annually at least the minimum amounts required under the Employee Retirement Income Security Act of 1974. Weighted Average Assumptions10/31/0710/31/0610/31/05Discount Rates used to determine net periodic
 pension cost as of October 31, 2007, 2006 and 20056.00%5.75%6.50%Expected long-term rates of return on assets8.50%8.50%8.50%Rates  of increase in compensation levels4.00%4.00%4.00%  Change in Benefit Obligation10/31/0710/31/06Benefit obligation at beginning of year$5,031,273$5,741,736Service cost176,663202,212Interest cost305,158290,574Curtailment gain0(634,387)Actuarial gain(80,531)(347,569)Benefits paid(243,158)(221,293)Benefit obligation at end of year$5,189,405$5,031,273  Change in Plan Assets10/31/0710/31/06Fair value of plan assets at beginning of year$3,944,053$3,528,530Actual return on plan assets525,225371,870Employer contributions444,494368,276Benefits paid(243,158)(221,293)Administrative expenses(82,217)(103,330)Fair value of plan assets at end of year$4,588,397$3,944,053  Reconciliation of Funded Status of the Plan10/31/06Funded status at end of year($1,087,220)Unrecognized transition obligation18,880Unrecognized net prior service cost1,981Unrecognized net actuarial loss693,325Net amount recognized at end of year($373,034)  Amounts Recognized in the Combined Balance Sheet10/31/0710/31/06Before application of SFAS 158Accrued pension expense($103,362)($579,360)Intangible asset1,11320,861Accumulated other comprehensive loss (pre-tax)0185,465Net amount recognized before adoption of SFAS 158($102,249)($373,034)One-time effect of SFAS 158 adoption$498,759$0     32   Table of Contents    10/31/07After application of SFAS 158Prepaid benefit cost$0Accrued pension expense(601,008)Intangible asset0Accumulated other comprehensive loss (pre-tax)498,759Net amount recognized after adoption of SFAS 158($102,249)  10/31/0710/31/06Other Comprehensive Loss Attributable to Change in Additional Minimum Liability$0$93,965  Additional Year-End Information for Pension Plan with Accumulated Benefit Obligation in Excess of Plan Assets10/31/0710/31/06Projected benefit obligation$5,189,405$5,031,273Accumulated benefit obligation$4,691,759$4,523,413Fair value of plan assets$4,588,397$3,944,053  Amounts Recognized in Accumulated Other Comprehensive Income10/31/07Net actuarial loss$481,040Prior service cost1,707Unrecognized net initial obligation16,012Total (before tax effects)$498,759  Components of Net Periodic Benefit Cost10/31/0710/31/0610/31/05Service cost$176,663$202,212$274,289Interest cost305,158290,574305,039Expected return on plan assets(341,029)(305,358)(274,934)Amortization of transition obligation2,8683,8038,480Amortization of prior service cost274274611Amortization of accumulated gain29,77536,86033,552Total net periodic benefit cost$173,709$228,365$347,037Curtailment expense045,8360Total expense$173,709$274,201$347,037  Amounts Expected to be Recognized in Net
Periodic Cost in the Coming Year10/31/07Prior service cost recognition$274Net initial obligation recognition2,868  Estimated Future Benefits PaymentsFiscal YearBenefits2008$247,7332009$234,5752010$222,1272011$279,7242012$306,8382013-2017$1,991,657 The Companies expect to contribute $509,449 to the pension plan in fiscal 2008. Measurement Date   October 31    33   Table of Contents    Weighted Average AssumptionsFor Determination of:Benefit Obligations 
as of 
October 31, 2007Benefit Obligations as of 
October 31, 2006Discount rate6.25%6.00%Rate of compensation increase4.00%4.00%Expected long-term return8.50%8.50%  Weighted-Average Asset Allocations10/31/0710/31/06Asset CategoryEquity59.98%60.00%Fixed Income38.40%39.00%Cash Equivalents1.62%1.00%Total100.00%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%. 10.  PROPERTIES: Properties consist of the following at October 31, 2007 and 2006. 10/31/200710/31/2006Land improvements$9,633,110$6,156,934Corporate buildings496,092496,092Buildings leased to others27,146,02526,162,252Equipment and furnishings2,447,0962,194,69439,722,32335,009,972Less accumulated depreciation and amortization10,523,8759,892,314$29,198,448$25,117,658 11.  ACCRUED LIABILITIES: Accrued liabilities consist of the following at October 31, 2007 and 2006. 10/31/200710/31/2006Payroll$129,329$127,647Security & Other Deposits47,10036,354Professional Fees128,98541,883Insurance Claims34,13786,952Real Estate Taxes86,890123,696Billings in excess of construction costs16,496196,150Miscellaneous111,483305,730$554,420$918,412    34   Table of Contents   12.  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 3.73 years with options for renewal.  Information concerning rental properties and minimum future rentals under current leases as of October 31, 2007 is as follows: Properties Subject to LeaseCostAccumulated DepreciationInvestment properties leased to others$27,146,025($5,069,614)Land and land improvements$23,348,532($3,633,214)Minimum future rentals:Fiscal years ending October 31:2008$1,957,91520091,796,35020101,636,50120111,605,00320121,566,584Thereafter72,110,099$80,672,452 Thereafter, includes $1,011,500 under a land lease expiring in 2072; $5,095,728 and $1,438,294 under net leases for two stores expiring in 2024; and $25,304,125 and $27,186,250 under net leases for two stores expiring in 2082; and $5,308,039 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, 2007, 2006 and 2005.  The above information includes all option years and rental escalations, recognized using straight-line basis. 13.  INVESTMENT IN DIRECT FINANCING LEASES: The Companies lease the Jack Frost and Big Boulder ski areas under direct financing leases through 2034.  The leases provide for minimum payments plus scheduled increases based upon the consumer price index, not to exceed 4% in any given year.  Minimum future lease payments due under those leases is as follows: Year ending October 31:2008$243,7452009249,8392010256,0852011262,4872012269,049Thereafter15,897,688TOTAL$17,178,893 The Companies net investment in direct financing leases consists of the following as of October 31: 20072006Minimum future lease payments$8,748,014$9,007,281Unguaranteed residual value of lease properties8,430,8798,430,879Gross investment in lease17,178,89317,438,160Unearned income(8,837,514)(9,076,585)Net investment in direct financing leases$8,341,379$8,361,575 Unearned interest income is amortized to income using the interest method.  The scheduled lease increase over the terms of the leases have been accounted for on a straight line basis in accordance with generally accepted accounting principles and is evaluated for collectibility on an ongoing basis.    35   Table of Contents   14.  FAIR VALUE OF FINANCIAL INSTRUMENTS: The estimated fair values of the Companies' financial instruments are as follows at October 31, 2007 and 2006: Carrying AmountFair ValueCarrying AmountFair ValueASSETS:10/31/0710/31/06Cash and cash equivalents$  201,782$  201,782$  153,742$  153,742Accounts and mortgages receivable584,600584,600856,593856,593  CarryingFairCarryingFairAmountValueAmountValueLIABILITIES:10/31/0710/31/06Accounts payable$1,415,543$1,415,543$1,811,335$1,811,335Amounts due to related parties48,959066,4600Debt26,465,93025,930,03322,030,70021,490,700 Fair Values were determined as follows: Cash and cash equivalents, accounts and mortgages receivable, 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. Debt:  The fair value of debt is estimated using discounted cash flows based on current borrowing rates available to the Companies for similar types of borrowing arrangements. 15.  QUARTERLY FINANCIAL INFORMATION (Unaudited): The results of operations for each of the quarters in the last two years are presented below. 1st2nd3rd4thTotalYear ended 10/31/07Operating revenues$5,927,222$3,128,907$2,743,854$3,785,979$15,585,962Operating profit (loss)1,097,038(82,462)(239,196)317,2971,092,677Net income from discontinued operations52,61800052,618Net income (loss)594,025(126,839)(249,739)(31,220)186,227Net income (loss) before discontinued
   operations per weighted average 
   combined share$0.22($0.05)($0.10)($0.02)$0.05Net income (loss) per weighted average
   combined share$0.24($0.05)($0.10)($0.01)$0.08  1st2nd3rd4thTotalYear ended 10/31/06Operating revenues$1,496,504$2,194,983$4,670,530$4,967,603$13,329,620Operating (loss) profit(747,382)(576,589)674,085677,52327,637Net (loss) income from discontinued
   operations(51,633)49,5243,269,043(15,126)3,251,808Net (loss) income(598,763)(388,802)3,594,249224,5962,831,280Net (loss) income before discontinued
   operations per weighted
   average combined share($0.23)($0.18)$0.14$0.10($0.17)Net (loss) income per weighted average
   combined share($0.25)($0.16)$1.49$0.09$1.17    36   Table of Contents   The quarterly results of operations for Fiscal 2007 and 2006 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 year ended October 31, 2007 and 2006 reflect ski operations being classified as discontinued operations, as well as the sale of Oxbridge Square shopping center in Fiscal 2006. 16.  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, New Jersey, Minnesota, Louisiana and Texas; a custom home construction division; recreational club activities and services to the trusts that operate resort communities; sales of investment properties; and rental of land and land improvements, which includes the leasing of our two ski areas and located in the Pocono Mountains of Northeastern Pennsylvania. Summer Recreation Operations Summer Recreation Operations consists of the Jack Frost National Golf Course located in the Pocono Mountains of Northeastern Pennsylvania, which opened in spring 2007.  The Lake Mountain Club was previously reported as part of this business segment, however, as a result of this operation being leased to a third party operator in Fiscal 2007, it is now reported under Real Estate Management/Rental Operations. Land Resource Management Land Resource Management consists of land sales, land purchases, timbering operations and a real estate development division.  Timbering operations consist of selective timbering on our land holdings.  Contracts are entered into for parcels that have had the timber selectively marked.  The real estate development 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 in Laurelwoods and Boulder Lake Village and the construction of 23 single family homes and four of 44 planned duplex homes in Laurelwoods.  We also began construction of Building J at Boulder Lake Village on Big Boulder Lake, an 18-unit condominium, during the summer of 2007.  Other expenditures for all development projects in the planning phases include fees for architects, engineers, consultants, studies and permits.    37   Table of Contents    10/31/0710/31/0610/31/05Revenues from continuing operations:Real estate management/rental operations$9,695,116$9,479,276$4,409,873Summer recreation operations580,328204,626774,288Land resource management5,310,5183,645,7186,498,729$15,585,962$13,329,620$11,682,890Operating profit (loss), excluding general and administrative expenses:Real estate management/rental operations$1,401,434$351,968$272,948Summer recreation operations(502,522)(21,040)90,830Land resource management1,581,0061,346,0973,131,941$2,479,918$1,677,025$3,495,719General and administrative expenses:Real estate management/rental operations$865,822$1,172,952$586,132Summer recreation operations51,36725,320102,913Land resource management470,052451,116863,769$1,387,241$1,649,388$1,552,814  10/31/0710/31/0610/31/05Interest and other income (expense), net:Real estate management/rental operations$303,766($27,657)$ 98,662Summer recreation operations2,16000Land resource management36,767(22,131)41,076$342,693($49,778)$139,738Interest expense:Real estate management/rental operations$979,791$574,373$585,460Summer recreation operations000Land resource management55,97058,01415,019$1,035,761$632,387$600,479Income (loss) from continuing operations before income taxes$399,609($654,528)$1,332,366 For the fiscal years ended October 31, 2007, 2006, and 2005, no one customer represented more than 10 % of total revenues. Identifiable assets, net of accumulated depreciation at October 31, 2007, 2006, and 2005 and depreciation expense and capital expenditures for the years then ended by business segment are as follows: IdentifiableDepreciationCapitalOctober 31, 2007AssetsExpenseExpendituresReal estate management/rental operations$61,565,997$865,243$772,399Summer recreation operations13,895,489163,902635,139Land resource management228,42453,24064,374Other corporate391,21696,22983,043Total$76,081,126$1,178,614$1,554,955     38   Table of Contents    IdentifiableDepreciationCapitalOctober 31, 2006AssetsExpenseExpendituresReal estate management/rental operations$70,592,405$903,006$15,864,370Summer recreation operations234,77830,16439,547Land resource management216,27945,710150,871Other corporate770,992102,35583,992Total$71,814,454$1,081,235$16,138,780  October 31, 2005Identifiable 
AssetsDepreciation 
ExpenseCapital 
ExpendituresReal estate management/rental operations$56,085,585$2,313,035$1,612,010Summer recreation operations203,60358,19924,834Land resource management134,45647,200140,208Other corporate570,099105,942128,784Total$56,993,743$2,524,376$1,905,836  17.  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. 18.  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, 2007, 2006 and 2005 Kimco was paid $100,000, $300,000 and $200,000 in consulting fees, respectively. Kimco Realty Corporation serves as the management company for 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, 2007 and 2006 that subsidiary received $44,795 and $36,810, respectively for management fees earned on the shopping center.  Kimco Realty Corporation also served as the management company for the Oxbridge Square Shopping Center located in Richmond, Virginia from June 2004 to June 2006 (at which point the shopping center was sold).  During its management term of Oxbridge Square, Kimco Realty Corporation was paid $109,928 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 received an annual fee of $17,500 in fiscal year ended October 31, 2007 and $35,000 in fiscal years ended October 31, 2006 & 2005.  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 in each of the years ended October 31, 2007, 2006 and 2005.  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 the above related parties total $48,959 at October 31, 2007 and $66,460 at October 31, 2006.    39   Table of Contents   19.  STOCK OPTIONS and CAPITAL STOCK: During Fiscal 2005, seven key employees were granted stock options totaling 52,000 shares, which vest over three years, all expiring February 2010.  During Fiscal 2006, five corporate officers were granted stock options to purchase a total of 21,500 shares, which options vest over three years and expire in February 2011.  During Fiscal 2007, five corporate officers were granted stock options to purchase a total of 21,500 shares, which options vest over three years and expire in March 2012. Option activity during the years ended October 31, 2007, 2006 and 2005 is as follows: 10/31/0710/31/0610/31/05SharesWeighted Average Exercise PriceSharesWeighted Average Exercise PriceSharesWeighted Average Exercise PriceOutstanding at 
   beginning of year:50,500$35.6287,000$23.0496,000$11.62Granted21,500$39.0021,500$37.8052,000$34.00Exercised(7,400)$34.00(58,000)$17.56(61,000)$14.42Canceled--Outstanding at end
   of year64,600$36.9350,500$35.6287,000$23.04Options exercisable
   at year-end34,738$35.9716,458$35.2446,440$13.46Option price range$34.00-$39.00$34.00-$37.80$6.75-$34.00Weighted average
   fair value of 
   options granted 
   during year$6.57$13.75$15.00Weighted average
   grant date fair value
   of options granted
   during year$14.46$14.30$15.70Weighted average 
   remaining contractual 
   life (in years)3.43.74.7  Activity related to non-vested options for the year ended October 31, 2006 is as follows: SharesWeighted Average Grant Date Fair Value PriceNon vested at beginning of year:34,042$9.97Granted21,500$  9.83Vested(25,680)$10.69Non-vested at year-end29,862$  9.25     40   Table of Contents   The total intrinsic value of options exercised during the fiscal year ended October 31, 2007, 2006 and 2005 is $251,600, $1,018,250 and $879,701, respectively.  The Companies expect to recognize compensation expense related to non-vested awards totaling approximately $169,399 over the next three years based on graded average vesting. The Companies policy regarding the exercise of options is that optionees utilize an independent broker to manage the transaction, whereby the broker sells the exercised shares on the open market. 20.  PER SHARE DATA: Earnings per share (EPS) is based on the weighted average number of common shares outstanding during the period.  Diluted EPS assumes weighted average options have been exercised to purchase shares of common stock in the years ended October 31, 2007, 2006 & 2005, net of assumed repurchases using the treasury stock method. Certain unexercised stock options to purchase shares of the Companies common stock were excluded from the dilutive calculation for year ended October 31, 2007 due to the exercise price of the options being greater than the market price of the Companies common stock. Weighted average basic and diluted shares, taking into consideration shares issued, weighted average options used in calculating EPS and treasury shares repurchased, for years ended October 31, 2007, 2006 & 2005 are as follows: 10/31/0710/31/0610/31/05Weighted average combined shares of common
   stock outstanding used to compute basic 
   earnings per combined share2,447,9572,412,9412,161,244Additional combined common shares to be 
   issued assuming exercise of stock options,
   net of combined shares assumed reacquired025,14445,992Combined shares used to compute dilutive 
   effect  of stock option2,447,9572,438,0852,207,235 Basic earnings (loss) per weighted average combined share from continuing operations is computed as follows: 10/31/0710/31/0610/31/05Net income (loss) before discontinued operations$133,609($420,528)$1,025,366Weighted average combined shares of common stock outstanding2,447,9572,412,9412,161,244Basic earnings (loss) per weighted average combined share$0.05($0.17)$0.48 Diluted earnings (loss) per weighted average combined share from continuing operations is computed as follows: 10/31/0710/31/0610/31/05Net income (loss) before discontinued operations$133,609($420,528)$1,025,366Combined shares used to compute dilutive effect of stock option2,447,9572,438,0852,207,235Basic earnings (loss) per weighted average combined share$0.05($0.17)$0.46 21.  SUBSEQUENT EVENTS: Effective November 30, 2007, the Companies terminated the management contract for the Jack Frost National Golf Course with the prior management company, Golf Strategies, LLC.  After accepting and reviewing proposals from several golf course management companies, on December 15, 2007, the Companies entered into a golf course management contract with Billy Casper Golf, LLC.  The initial term of the contract commences on January 1, 2008 and terminates on December 31, 2010 and may be renewed for a subsequent three year term.    41   Table of Contents         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, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2007 in conformity with accounting principles generally accepted in the United States of America. As disclosed in Note 1 to the combined financial statements, the Companies changed their method for recognizing and measuring compensation expense related to their non-qualified employee stock option plan. As disclosed in Note 2 to the combined financial statements, the Companies adopted the provisions of the Statement of Financial Accounting Standards No. 158 (SFAS 158), Employers Accounting for Defined Benefit Pension and Other Post Retirement Plans, in 2007. Parente Randolph, LLC Wilkes-Barre, Pennsylvania January 28, 2008     42