SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                  FORM 10-KSB

[ X ]     Annual Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

          For the fiscal year ended May 31, 1998, or

[   ]     Transition report pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934

          For the transition period from              to
                                        -------------   -------------

Commission File No. 0-15030

                              WINTER SPORTS, INC.
                              -------------------

             (Exact name of registrant as specified in its charter)

         Montana                                  81-0221770
         -------                                  ----------

(State of Incorporation)                  (I.R.S. Employer I.D. No.)

                  P. O. Box 1400, Whitefish, Montana    59937
                  -------------------------------------------


Registrant's telephone number, including area code  (406) 862-1900

Securities registered pursuant to Section 12(b) of the Act:

                                      None

Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, No Par Value

Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days.  Yes [ X ]    No [   ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [   ]

Registrant's revenues in its most recent fiscal year were $9,256,598.

Approximate aggregate market value of the voting stock held by non-affiliates of
the registrant as of August 15, 1998 was $7,545,380.  As of August 15, 1998, the
number of shares outstanding of the registrant's common stock, no par value, was
1,008,368.

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------


Location in Form 10-KSB      Incorporated Document
-----------------------      ---------------------


Part III, Item 9, Item 10    Proxy Statement dated September 15, 1998 to be Item
11, Item 12                  filed with the Securities and Exchange Commission
                             for the annual meeting of shareholders to be held
                             on October 13, 1998.

Total number of pages, including cover page          Exhibit Index - page

                              WINTER SPORTS, INC.

                                  Form 10-KSB

                               Table of Contents
                               -----------------


                                                                         Page
                                                                         ----


Part I
------


Item  1 - Business.........................................................

Item  2 - Properties ......................................................

Item  3 - Legal Proceedings ...............................................

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

Part II
-------


Item  5 - Market for Common Stock and Related Stockholder Matters .........

Item  6 - Management's Discussion and Analysis of Financial Condition
          and Results of Operations .......................................

Item  7 - Financial Statements ............................................

Item  8 - Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure ........................................

Part III
--------


Item  9 - Directors and Executive Officers of the Registrant ..............

Item 10 - Executive Compensation ..........................................

Item 11 - Security Ownership of Certain Beneficial Owners and
          Management ......................................................

Item 12 - Certain Relationships and Related Transactions ..................

Part IV
-------


Item 13 - Exhibits and Reports on Form 8-K ................................

          Exhibit Index ...................................................

          Exhibits ........................................................

Signatures ................................................................




                                     Part I
                                     ------


Item 1.  Business

Winter Sports, Inc. d/b/a The Big Mountain Ski and Summer Resort (the
`Company'' or ``The Big Mountain''), was organized in 1947 as a Montana
corporation, for the purpose of developing and operating a ski resort at The Big
Mountain, located eight miles north of Whitefish, Montana.

Operations are carried out on nearly 4,000 acres of land at that location,
approximately 3,073 acres of which are utilized under permits from, and the
supervision of, the U.S. Department of Agriculture, U.S. Forest Service (the
`Forest Service'').  The balance of the land is owned by the Company.  Revenues
are generated from lift ticket sales, restaurant operations, auxiliary services,
and fees and rentals charged concessionaires and other parties leasing space for
buildings and concessions.  In fiscal 1993, real estate sales became a
significant business segment.  The Company owns approximately 600 acres in and
around its base area which is available for commercial and residential
development.

The ski facilities include eight chairlifts, a T-bar lift and a platter lift,
which service approximately 35 miles of ski slopes and trails.  In addition to
the skiing facilities, the Company also operates the Hibernation House (hotel
facilities), Moguls Bar & Grille (food and beverage), the Alpine Lodge
(cafeteria), Big Mountain Sports (ski rental, repair and ski shop) and a Ski
School, all located in the base area, as well as the Summit House (food,
beverage and retail) located at the summit of the mountain and the Outpost
(cafeteria, ski shop and skier services operation) at the lower village near
overflow parking lots.  The Company has leased to concessionaires, four food and
beverage operations, a day-care center, a photography shop, a snowmobile
operation and a sleigh ride, wagon ride and summer horse back riding operation.
Revenues derived by the Company from these ancillary operations, other than the
ski facilities and real estate, represented 40.97%, 40.97% and 42.29% of total
revenues in 1997/98, 1996/97 and 1995/96, respectively.  The Company has an all
beverage liquor license and is designated as a `resort area'' for the issuance
of additional resort retail liquor licenses.

During the 1992 fiscal year, twenty two condominiums located in the base area
were purchased for resale to third parties.  At May 31, 1998, only one
condominium unit remains and the Company intends to retain ownership in that
unit for the foreseeable future.  Also in 1992, the Company began developing
approximately seven percent of its fee simple land into single-family home lots
and townhome lots, for the purpose of sale to interested parties.  Sales of
single-family and townhome lots began in 1993 when plat approval was received.
The Company has developed 56 townhome lots and 71 single-family lots in four
phases to date.  In addition, four townhome units were constructed and sold by
the Company.  At May 31, 1998, 20 single-family lots remain available for sale.

The Company operates its facilities for skiing and related winter activities
from approximately mid-November until the following mid-April of each year.
During the ski season, the Company's facilities are operated seven days a week.
During the past 50 years, The Big Mountain has averaged approximately 140 days
of skiing operations annually.  A snowmaking system and improved grooming
equipment and technology have lessened the reliance on natural snowfall in
recent years; however, sufficient snowfall to operate the lifts and slopes
remains a primary consideration.

The Company also operates on a limited basis from late May through mid-October.
This operation consists of a chairlift/gondola ride to the summit for
sightseeing, hiking and limited food, beverage, rental and retail, hotel and
recreational facilities.

The Company's business is primarily seasonal.  A significant portion of its
gross revenue is derived during the winter ski season.  Real estate sales can
occur on a year-round basis.  The Company maintains a year-round staff of
approximately 50  employees.  During peak ski season, approximately 400
additional persons are employed.  During the limited summer operations,
approximately 70 additional persons are employed.

Located at or near the base area and on the access road to The Big Mountain are
privately owned condominium developments and a number of private homes, many of
which are available for public rental.  Other accommodations are available in
the Flathead Valley.  The ski area is served by an all weather secondary
highway.

The ski resort business is highly competitive.  The success of The Big
Mountain's business is predicated on skiing, which is affected by weather and
other factors, such as the economy, cost and availability of transportation,
energy shortages and the Canadian exchange rate.  The profitability and growth
of The Big Mountain's ski operation is largely determined by the number of
skiers attracted to the area.  The Company believes that its principal
competition for skiers comes from other destination resorts throughout the
western United States and western Canada.  Some of the ski resorts continuing to
be competitive with The Big Mountain are Whistler-Blackcomb in British Columbia,
Sun Valley and Schweitzer Basin in Idaho and Big Sky of Montana.  In addition,
Canadian ski resorts such as Lake Louise and Sunshine in Banff are considered
strong competition.  The Company also experiences competition from a number of
smaller regional ski areas, but believes it has a competitive advantage over
them because of the greater variety of skiing it offers, its larger facilities,
the length of its season and its extensive snowgrooming operations.

The land occupied by the mountain top restaurant (Summit House) and the
Company's lift sites is subject to a 30-year term, special-use permit from the
Forest Service expiring December 31, 2015, covering approximately 18 acres.
Approximately 3,055 acres are covered by a year-to-year Forest Service permit.
These permits do not create a legal interest in favor of the Company on the
subject lands.  The continued use of these Forest Service lands is subject to
certain hazards, common to all ski areas developed on such lands, including
federal business guidelines.  The Forest Service at any time may terminate the
permits under which the Company operates, upon payment of an equitable
consideration for the improvements.  Both permits require the allowed use to be
actually exercised at least 90 days per year.  The Company is obligated to pay
yearly fees to the Forest Service on a graduated rate based on the gross fixed
assets of the Company and on certain income.  Such rates are adjustable every
year.  The current rate is 1.58% of applicable revenues.  Payments for fiscal
year 1998 were $130,998. Payments in 1997 and 1996 were $104,375 and $133,650,
respectively.

In carrying out its business, the Company must comply with a number of
requirements concerning environmental quality.  Advance approval from the Forest
Service must be obtained for all construction, land alteration and significant
repair, in addition to obtaining approval from other state and federal agencies
regarding the protection of the environment and wildlife within the permitted
areas.  In 1985-86, the Company undertook a major expansion to build a chairlift
and ski slopes on the previously undeveloped northern slope of The Big Mountain.
As a result of this expansion, restrictions for north slope lifts and slopes
were imposed by the Forest Service covering the length of the ski season on
those slopes, time periods for construction and restriction of outdoor cooking
at the mountain top restaurant during the summer season.  Since 1990, the
Company has pursued additional expansion of ski terrain and additional amenities
to offer customers within its permit area and in 1996 a Record of Decision was
issued by the Forest Service approving most of the expansion items requested.

The Company has three wholly-owned subsidiaries.  Big Mountain Water Co., a
regulated utility, supplies water to all base area facilities and nearby
properties.  Big Mountain Development Corporation was activated in September
1991 to oversee and coordinate the planning and development of certain land
parcels owned by the Company.  Big Mountain Resort Reservations was created in
1996 to provide reservation services for on-mountain lodging properties.


Item 2.  Properties

The properties owned or leased by the Company are located eight miles north of
the City of Whitefish, in the northwest corner of the State of Montana, in the
Whitefish Range overlooking the Flathead Valley.  The Flathead Valley lies on
the western slope of the continental divide of the United States and is bordered
on the north by the Canadian provinces of British Columbia and Alberta.

In the winter of 1947, the Company opened a T-Bar lift, ski slopes, day
facilities and parking lots for use by the public.  Since 1947, chairlifts, ski
slopes, trails, a cross country course, dining and lodging accommodations were
added periodically.  In 1988-89 the one and one-half mile Big Ravine run from
the summit to the village area was constructed and in 1989-90, a major expansion
project included the construction of a high-speed detachable quad
chairlift/gondola to replace the first double chairlift.  Also added in that
year were a snowmaking system, grooming vehicles, a warehouse and maintenance
building, expansion of the Summit House building, burial of utility lines and
clearing of slopes and trails.  Additions in 1990-91 included a barn, a
mountaintop maintenance shop and tennis courts.  Also added were building
improvements and snowmaking.  During 1991-92, 22 condominiums located in the
base area were acquired for the purpose of resale.  By the end of 1995 one of
the condominiums remained unsold and was taken off the market.  Also in 1992,
initial development costs were incurred to develop approximately seven percent
of the Company's fee simple land into single-family home lots and townhouse lots
for the purpose of sale to third parties.

During 1992-93, the Village Lift, a fixed-grip quad chairlift, was constructed.
Other additions included parking lots, two Alpinglow Inn condominium units, a
bus, improvements to buildings, land, trails and roads, and snowmaking.  Real
estate lots began to sell in 1993.  During 1993-94, the Company built a new
lower village day lodge facility of approximately 8,900 square feet.  The
facility contains a cafeteria, ski rental and retail shop, ski patrol facilities
and ticket office.  Four townhomes were constructed for sale.  Facility
improvement projects in 1994-95 included hotel residing, grading of the road to
the Outpost Building, fabrication of a village stairway, completion of 14
additional single family lots, and the addition of a real estate sales building.
Improvements in 1995-96 included paving of the road to the Outpost Building,
remodeling of the rental and retail facility in the base area, extension of the
upper terminal of Chair #6 to improve access to the village, and an additional
pumping station for the snowmaking reservoir. Improvements in 1996-97 included
an 8 mile mountain bike trail from the summit to the base area, the purchase of
two customer shuttle vans and the acquisition of a vehicle for road sanding.
During the year the Company also completed 14 additional single family lots in
Sunrise Ridge.

During 1997-98 the Company replaced Chair 7, a fixed-grip triple chairlift, with
a high-speed quad chairlift.  The former fixed-grip triple chairlift was
redeployed into the Hellroaring Basin which allows guest access to an additional
500 acres of terrain.  During the year a lift was installed that will transport
guests to the top of the Company's tubing hill.  The Company also purchased two
new grooming vehicles to add to the existing fleet of front-line groomers. A
second 4.5 million gallon reservoir was completed near the summit of the
mountain.  In the first quarter of the year the Company began construction of a
52,000 square foot mixed use condominium project at the entrance of the
Company's core village.  The project, known as the Kintla Lodge, contains 20
residential condominium units, an owners' lounge and lobby, and 6 retail or
commercial condominium units.  The project is expected to be completed in the
second quarter of fiscal year 1998-99.

The Company operates on 4,000 acres, approximately 3,073 acres of which are
owned by the United States Forest Service and are subject to their special-use
permits.  Substantially all of the Company's assets, excluding lands designated
for real estate development are encumbered to secure the Company's loans.  See
Note 5 of the `Notes to Consolidated Financial Statements''.

The lengths and capacities of the Company's ski lifts are as follows:

Lifts               Type          Number *    Vertical Rise      Rides/Hour
-----               ----          --------    -------------      ----------


Glacier Chaser    Quad Chair       #1          2,088 ft.              2,400
Swift Creek       Double Chair     #2          1,116 ft.                950
Tenderfoot        Triple Chair     #3            434 ft.              1,070
Great Northern    Triple Chair     #4          1,360 ft.              1,575
Glacier View      Triple Chair     #5            840 ft.              1,800
Village Lift      Quad Chair       #6            280 ft.              1,500
Big Creek Express Quad Chair       #7          1,216 ft.              1,800
Hellroaring       Triple Chair     #11         1,281 ft.              1,800
T-Bar                                            572 ft.                925
Platter                                           60 ft.                750

*  Chair numbers refer to numbers assigned in The Big Mountain's Resort Area
Master Plan.

The Company's major buildings are as follows:

                                              Square Footage

Building                                      Floor      Deck
--------                                      -----      ----


  Ski Lodge                                  17,494     3,500
  Chalet                                     11,428     1,080
  Alpine Lodge                               10,272
  Bierstube                                   3,860     2,000
  Big Mountain Ski Shop                       8,928
  Hibernation House                          15,360
  Summit House                               14,400     2,920
  Ski Hut                                       896
  Maintenance Building                        5,250
  Warehouse and Maintenance Building         15,360
  Ticket Sales Building                         850
  Barn                                        1,800
  Maintenance Shop on mountaintop             1,800
  Outpost Building                            8,904
  Real Estate Sales Building                  1,440

Item 3.  Legal Proceedings

The information appearing in Note 13 of the Notes to Consolidated Financial
Statements is incorporated herein by reference.


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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended May 31, 1998.


                                    Part II
                                    -------


Item 5.  Market for Common Stock and Related Stockholder Matters

The Company's common stock is traded on the NASDAQ Over The Counter Electronic
Bulletin Board under the symbol `WSKI''.

The following table sets forth the range of quarterly high and low bid
quotations for the Company's common stock for the last two fiscal years.  High
and low bid quotations have been supplied by D. A. Davidson & Co., Inc., a
registered broker-dealer.  Such over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions.

                                   1998              1997
                                   ----              ----

          Quarter             High      Low     High      Low
          -------             ----      ---     ----      ---


          1st               12.750   10.750   13.703   13.469
          2nd               14.750   10.750   13.703   13.469
          3rd               17.880   10.380   14.250   10.500
          4th               13.500   10.000   10.750   10.750

No cash dividends have been paid on the Company's common stock since 1984.  On
August 25, 1989, August 31, 1990, August 19, 1991, November 10, 1992, November
12, 1993, November 22, 1994, November 29, 1995 and December 27, 1996, 4% common
stock dividends were paid, with fractional shares paid in cash.

The declaration of dividends is subject to certain restrictions contained in the
loan agreement between Bank of America National Trust and Savings Association,
doing business as Seafirst Bank and the Company.  These restrictions prohibit
the payment of cash dividends, other than for preferred dividends or fractional
shares, without prior written consent of the Bank.

The Company's Bylaws authorize the Board of Directors to declare dividends on
common or preferred stock out of unreserved and unrestricted earned surplus or
out of unreserved and unrestricted net earnings of the current and preceding
fiscal years, taken as a single period.  Cumulative dividends, in the amount of
$4 per share per year, must be paid on preferred stock prior to the payment of
cash dividends on the common stock.  As of May 31, 1998, the Company redeemed
and retired all 245 shares of the outstanding preferred stock along with the
accumulated dividends.

The approximate number of shareholders of record for the Company's common stock
as of August 15, 1998 was 768.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following relates to the fiscal years of the Company.

RESULTS OF OPERATIONS

Revenues

Revenues declined by $893,926 or 9%.  Although real estate sales increased by
$195,584 from the prior year, a lack of adequate snowfall at the beginning of
the ski season resulted in a decline in skier visits for the year.  Lift revenue
was off by 12% ($611,819) from the prior year while food, beverage and retail
revenue decreased by 21% ($423,364).  Despite the decline in skier visits,
equipment rental and repair managed to increase by 2% or $10,003.  The Company
attributes the increase to the installation of the tubing hill lift, the
increase in mountain bike rentals and the continuing demand for rental
snowboards and parabolic or shaped skis as more and more guests try these
activities for the first time.

Skier visits decreased by 62,810 (23%) in 1998 due primarily to a lack of
adequate snowfall at the beginning of the ski season and a decline in sales of
the Company's discounted pre-season vouchers.  Sales of the pre-season vouchers
decreased by 62% (62,282) from the prior year as the price was increased from
$23 to $28 (22%). The Company experienced weak demand from its Canadian markets
as the Canadian dollar continued to weaken throughout the Company's fiscal year.
The Company does not believe the weakness in the Canadian dollar is permanent;
however, it is unclear as to when an improvement in the Canadian exchange rate
will occur.  The Company's four major markets are: the Pacific Northwest,
Western Canada, the Midwest and the local drive market. The Company plans to
continue to expand its marketing programs in all of its markets.  The Company
will be focusing more of its marketing efforts on the travel trade industry.

In 1997, the Company experienced an increase in revenue of $640,696 (7%).  Real
estate sales accounted for a major portion of the increase. Revenue from
equipment rental and repair increased by $85,244 (20%).

Operating Expenses

Operating costs and expenses decreased by 0.5% or $50,608.  Increases in
Marketing, Depreciation - Lifts and Cost of Real Estate Sales were, in essence,
offset by decreases in Direct Expenses - Lifts, Payroll and Related Expenses,
and the Cost of Food, Beverage and Retail.  The increase in marketing costs are
part of a continuing plan to recapture the Company's share of the Canadian
market as well as expand its share of the domestic market.  The Company
anticipates that it will further increase its expenditures for Marketing into
the next fiscal year.  Depreciation - Lifts increased due to the installation of
a $2,400,000 high-speed, quad chairlift.  The Cost of Real Estate Sales
increased in proportion to the increase in Real Estate Sales.  Due to the
decline in skier visits from the prior year both the Cost of Food, Beverage and
Retail and Direct Expenses - Lifts declined from the prior year.

In 1997, overall costs and expenses increased by $343,602 (4%) due to a $187,994
increase in the cost of real estate sales.  The record level of snowfall allowed
the Company to open 100% of its facilities as scheduled and remain open for one
extra week at the end of the season.  This resulted in an increase in Direct
Expenses - Lifts and Direct Expenses of $71,645 (4%) and $60,477 (6%),
respectively.  In Marketing, the Company increased not only the size of it's
Marketing staff but the amount of the Marketing expenditures with the goal of
capturing more group business at the resort and growing it's share of the
Company's four major markets.  Marketing costs were $48,198 higher than the
previous year. The Company is constantly looking for ways to decrease its costs
in all areas of operations while maintaining or increasing the level of customer
service and market presence.

Interest Income/Expense and Other Income/Expense

Interest expense increased by $158,376 or 83% from 1997.  This increase was due
to the higher level of interest bearing debt the Company incurred from its
capital projects and the decline in cash flow from operations.  During 1998, the
Company capitalized interest of $22,628, a $14,898 increase over the prior year.

The Company charged against income $75,739 of Construction in Progress costs
that are not expected to be utilized within the foreseeable future.

In 1997, interest expense was $189,694 compared to $228,921 in 1996, a 17%
decrease.  Lower debt levels throughout most of 1997 more than offset the slight
increase in interest rates incurred during the year.  Capitalized interest in
1997 was $7,730 compared to $6,106 in 1996.

During 1997 the Company charged against income $124,550 of planning costs
carried in Construction in Progress and $5,446 of planning costs carried in
Other Assets. The charge relates to certain elements of master planning costs
for long-term resort development which are not expected to be utilized within
the foreseeable future.


Income Taxes and Net Income

Pre-tax income in 1998 decreased by $941,797 (252%) resulting in a $568,485 pre-
tax loss.  Income taxes recovered in 1998 amounted to $251,613, a $394,297
decrease from the income taxes provided in 1997.  The increase in the effective
tax rate was mainly due to an increase in alternative minimum taxes generated by
the carryback of net operating losses from the current tax year. Net income
(loss) in 1998 fell to ($316,872) or ($0.32) per common share from $230,630 or
$0.23 per common share in 1997.

Income before income taxes in 1997 was $373,313, an 129% increase from 1996.
The provision for income taxes in 1997 was $142,683 compared to $49,677 in 1996.
The increase in the effective tax rate was mainly due to a higher Federal
statutory rate due to higher levels of taxable income.  Net income in 1997 was
$230,630 or $0.23 per common share compared to $113,325 or $0.11 per common
share for 1996 (restated to recognize a 4% stock dividend issued December 27,
1996).

LIQUIDITY AND CAPITAL RESOURCES

Working capital at the end of 1998 was $(507,669), a $181,298 decline from
($326,371) at the end of 1997.  The decrease in working capital was primarily
due to the increase in Accounts Payable related to the construction of the
Kintla Lodge.  The ratio of current assets to current liabilities at the end of
1998 was .73 to 1, the same ratio as at the end of 1997.  Cash flows from
operating activities decreased to ($588,638) in 1998 from $1,536,990 in 1997 due
primarily to construction of condominium units for resale.

At the end of 1997, working capital was ($326,371) a decline of $386,547 from
the prior year.  The decrease was due to the change from a $128,948 income tax
refund receivable in 1996 to a $157,323 income tax payable in 1997.  At the end
of 1997, the ratio of current assets to current liabilities was 0.73 to 1
compared to 1.07 to 1 at the end of the prior year.  Working capital has
traditionally been negative at the end of the fiscal year as the Company's main
periods of activity are the third and early fourth quarters.  For 1997, cash
flows from operating activities increased by 178% ($984,145) from the prior
year.  The increase was primarily due to a 169% increase in real estate sales.

Long-term debt at the end of 1998 increased to $6,334,945 from $2,644,050 at the
end of 1997 which amounted to 75% of stockholders' equity compared to 30% at the
end of 1997.

At the end of 1997, long-term debt was $2,644,050 which represented 30% of
stockholders' equity.  This represents a 5% decline in long-term debt from the
prior year.

The Company provides for its cash requirements primarily through cash generated
by operating activities, supplemented by borrowing under a revolving, reducing
credit facility.  The Company currently has a loan agreement with Bank of
America National Trust and Savings Association, doing business as Seafirst Bank
(Seafirst).  The agreement provides for an $8,750,000 revolving, reducing line
of credit which matures on June 1, 2007.  The agreement provides funds for
seasonal working capital, capital projects and restructuring of long-term debt.
The agreement calls for reducing availability of funds in the amount of $650,000
each June 1st beginning June 1, 1998.  Principal reductions are required on any
outstanding balances above the available amount.  The agreement allows any
mandatory principal payment otherwise due to be skipped should annual gross
revenues (excluding real estate related revenues) drop below $8.5 million due to
conditions beyond the control of the Company.  The provision is limited to two
such skip payments during the term of the loan.  The interest rate on the new
facility is at or below Seafirst's reference rate.  The Company may obtain funds
below the reference rate by utilizing a London Interbank Offered Rate based
option.  Standby letters of credit also reduce the amount available under the
revolving agreement. There were $2,576,120 of unused funds on the Seafirst line
of credit at May 31, 1998.

During 1998, the Company obtained a $3.9 million construction line of credit
from the Whitefish Credit Union for construction of Kintla Lodge.  The
construction line of credit matures on September 1, 1999 and bears interest at
New York Prime plus .5% or 9% at May 31, 1998.  Interest is to be paid monthly
and the loan is secured by a first lien on the land, building & equipment known
as the Kintla Lodge.  The balance outstanding at May 31, 1998 on the
construction line of credit was $161,065 with $3,738,935 available for future
use.

At May 31, 1997, the Company had standby letters of credit of $114,828
outstanding and had unused funds available of $5,991,122 on the Seafirst line of
credit.

The Company has long-term plans to further develop The Big Mountain Ski & Summer
Resort and its real estate properties, on its own or with joint venture
partners.  In addition, the Company has received a Record of Decision on its
Environmental Impact Statement from the United States Forest Service Supervisor
regarding requested expansion of the resort within its lease boundaries.  The
decision will allow for most of the requested expansion the Company has been
pursuing for several years.  Financing for future development is anticipated to
include cash generated from operations, issuance of additional debt and may also
include additional equity financing.

YEAR 2000

The Company has initiated a company-wide project to assess the potential issues
associated with computer programming codes in its existing computer systems with
respect to a two-digit value for the year 2000. This project consists of an
evaluation of the technology and data used in the Company's internal operations
and the creation and delivery of its products and services in order to identify
potential year 2000 issues. The project also includes assessing any year 2000
issues that may be caused by the Company's customers and vendors, but there can
be no assurance that such third parties will successfully remediate their own
year 2000 issues over which the Company has no control. The Company believes
that it will complete its assessment as well as implement any necessary
programming modifications prior to the commencement of the year 2000 and,
assuming that the Company's customers and vendors successfully remediate their
own year 2000 issues, the Company believes it will have no material business
risk from such year 2000 issues. Management believes that any cost associated
with the assessment of year 2000 issues as well as necessary modifications to
its systems will not have a material adverse impact on the Company's financial
position, results of operations or cash flows.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements regarding matters that are
subject to risks and uncertainties.  For such statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in
Section 21E of the Securities Exchange Act of 1934, as amended. The Company's
results could differ materially from those discussed in each forward-looking
statement due to various factors which are outside the Company's control.

Item 7.  Financial Statements

Index to Consolidated Financial Statements                                Page


     Independent Auditors' Report.....................................

     Financial Statements:

       Consolidated Balance Sheets as of May 31, 1998 and 1997........

       Consolidated Statements of Income and Retained Earnings
          for the Years Ended May 31, 1998, 1997 and 1996..............

       Consolidated Statements of Cash Flow
          for the Years Ended May 31, 1998, 1997 and 1996..............

       Notes to Consolidated Financial Statements.....................

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Winter Sports, Inc.
Whitefish, Montana

We have audited the accompanying consolidated balance sheets of Winter Sports,
Inc. (a Montana Corporation) as of May 31, 1998 and 1997, and the related
consolidated statements of income and retained earnings, and cash flows for each
of the three years in the period ended May 31, 1998.  These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Winter Sports, Inc.
as of May 31, 1998 and 1997 and the results of operations and cash flows for
each of the three years in the period ended May 31, 1998, in conformity with
generally accepted accounting principles.

Jordahl & Sliter PLLC
Kalispell, Montana
July 7, 1998


                              WINTER SPORTS, INC.
                              -------------------


                          CONSOLIDATED BALANCE SHEETS

                                                               May 31
                                                               ------

                                                       1998              1997
                                                       ----              ----
ASSETS
------


Current Assets
  Cash and cash equivalents                    $    150,005      $    122,322
  Certificates of deposit                           249,000                 0
  Receivables (net of reserve for bad debts
     of $14,690 and $41,982, respectively)           67,197           111,650
  Receivables - related parties                       5,432            20,529
  Income tax refund receivable                      275,615                 0
  Current deferred tax asset                         51,767            55,020
  Inventories                                       405,566           409,916
  Prepaid expenses                                  163,567           162,323
                                               ------------      ------------

Total Current Assets                              1,368,149           881,760
                                               ------------      ------------


Property and Equipment, at Cost                  22,465,183        18,908,457
Accumulated depreciation and amortization       (10,823,047)       (9,750,111)
                                               -------------      ------------

                                                 11,642,136         9,158,346
Construction in progress                          2,645,350         1,460,769
Land and development costs                        2,115,106         2,213,523
                                               ------------      ------------

Net Property and Equipment                       16,402,592        12,832,638
                                               ------------      ------------


Other Assets                                        282,044           304,811
                                               ------------      ------------


TOTAL ASSETS                                   $ 18,052,785      $ 14,019,209
                                               ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Accounts payable                             $  1,044,474      $    494,476
  Accounts payable - related parties                 79,065             8,981
  Employee compensation and related expenses        174,998           160,180
  Taxes other than payroll and income               120,140           140,249
  Income taxes payable                                   50           157,323
  Deposits and other unearned income                451,507           244,543
  Other current liabilities                           5,583             2,379
                                               ------------      ------------

Total current liabilities                         1,875,817         1,208,131
Long-term debt                                    6,334,945         2,644,050
Deferred income taxes                             1,361,554         1,343,227
                                               ------------      ------------

Total Liabilities                                 9,572,316         5,195,408
                                               ------------      ------------


Commitments and contingencies

Stockholders' Equity
  Preferred stock (950 shares of $100 par value
  authorized; 4% cumulative; 0 and 245 shares
    outstanding, respectively)                            0            24,500
  Common stock (5,000,000 shares of no-par value
    authorized; 1,008,368 and 1,008,368 shares
    outstanding in 1998 and 1997, respectively)   4,099,174         4,099,174
  Additional paid-in capital                         20,519            20,519
  Retained earnings                               4,360,776         4,679,608
                                               ------------     -------------

Total stockholders' equity                        8,480,469         8,823,801
                                               ------------     -------------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $ 18,052,785     $  14,019,209
                                               ============     =============

   The accompanying notes are an integral part of these financial statements.


                              WINTER SPORTS, INC.
                              -------------------


            CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

                                                 Year Ending May 31,
                                           1998         1997          1996
                                           ----         ----          ----

Revenue
  Lifts                               $ 4,662,431   $ 5,274,250   $ 5,219,915
  Food, beverage and retail             1,607,281     2,030,645     1,938,393
  Equipment rental and repair             514,572       504,569       419,325
  Lodging                                 202,199       245,392       247,516
  Lease, management and other fees      1,249,907     1,214,962     1,153,996
  Lease, management and other fees
    - related parties                     102,417       158,498       262,143
  Real estate sales                       917,791       722,208       268,540
                                       ----------    ----------    ----------

Total Revenue                           9,256,598    10,150,524     9,509,828
                                       ----------    ----------    ----------


Operating Expenses
  Direct expenses - lifts               1,629,916     1,701,435     1,629,790
  Depreciation expense - lifts            676,249       560,313       555,748
  Cost of food, beverage and retail       322,730       801,209       805,061
  Cost of real estate sales               590,253       264,639        76,645
  Payroll and related expenses          2,671,283     2,764,999     2,896,111
  Direct expenses                       1,073,999     1,104,010     1,043,533
  Direct expenses - related parties        41,488        53,592        26,451
  Marketing                               950,484       752,514       704,316
  Marketing - related parties               5,867             0             0
  Depreciation and amortization           532,408       528,375       496,180
  General and administrative              891,193       893,477       828,853
  General and administrative -
    related parties                        28,475        40,390        58,663
                                       ----------    ----------    ----------

Total Operating Expenses                9,414,345     9,464,953     9,121,351
                                       ----------    ----------    ----------


Operating Profit (Loss)                  (157,747)      685,571       388,477
                                       -----------   ----------    ----------


Other Income (Expense)
  Interest income                           9,728         4,675         4,528
  Interest expense                       (348,070)     (189,694)     (228,921)
  Other income(expense)                   (72,396)     (127,239)       (1,082)
                                       ----------    ----------    -----------

Total Other Income (Expense)             (410,738)     (312,258)     (225,475)
                                       ----------    ----------    -----------


Income (Loss) before income taxes        (568,485)      373,313       163,002
  Provision for (Recovery of)
  income taxes                           (251,613)      142,683        49,677
                                       ----------    ----------    ----------


Net Income (Loss)                        (316,872)      230,630       113,325

Retained earnings - beginning of year   4,679,608     4,993,112     5,468,524
  Dividends                                (1,960)     (544,134)     (588,737)
                                       ----------    ----------    ----------

Retained earnings - end of year        $4,360,776    $4,679,608    $4,993,112
                                       ==========    ==========    ==========

Net Income (Loss) per common share     $    (0.32)   $     0.23    $   0.11(1)
                                       ===========   ==========    ========


Weighted average shares outstanding     1,008,368     1,008,368   1,008,368(1)

(1)  Restated to reflect stock dividend issued December 27, 1996

   The accompanying notes are an integral part of these financial statements


                              WINTER SPORTS, INC.
                              -------------------


                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    Year Ending May 31,
                                             1998          1997          1996
                                             ----          ----          ----


Cash flows from operating activities
  Net income (loss)                     $(316,872)    $ 230,630     $ 113,325
                                        ---------     ---------     ---------


Adjustments to reconcile net income
  to cash provided by
  operating activities:
    Depreciation and amortization       1,208,657     1,088,688     1,051,928
    Increase (decrease) in deferred
     income taxes                          23,100       (52,640)       14,519
    Loss on sale or retirement of assets   77,563       136,637         1,122
    Bad debt expense (net of recovery)     72,977        40,767        42,043
    Changes in operating assets
     and liabilities:
       Receivables                         (6,949)      (39,532)      (89,008)
       Refundable income taxes           (275,615)      128,948       (90,286)
       Inventories                          4,350        14,584       (81,446)
       Prepaid expenses                    (1,244)        7,849       (17,944)
       Construction in progress        (1,687,081)     (278,079)      (66,782)
       Land and development costs          98,417       (22,886)       48,638
       Other assets                          (326)       (5,907)      (23,228)
       Accounts payable                   166,781        80,101      (289,620)
       Employee compensation and
         related expenses                  14,818        39,310      (105,731)
       Interest payable                         0       (42,577)       37,540
       Taxes other than payroll and
         income taxes                     (20,109)       (7,755)        1,765
       Income taxes payable              (157,273)      157,323      (108,594)
       Deposits and other
         unearned revenue                 206,964        60,832       115,174
       Other liabilities                    3,204           697          (570)
                                        ---------     ---------     ---------

  Total adjustments                      (271,766)    1,306,360       439,520
                                        ---------     ---------     ---------

Net cash provided by (used in)
operating activities                     (588,638)    1,536,990       552,845
                                        ----------    ---------     ---------


Cash flows from investing activities:
  Proceeds from sale of assets             26,196        12,757        10,065
  Proceeds from redemption of
    certificate of deposit                      0             0        59,170
  Proceeds from sale of
    marketable securities                       0         1,104         1,104
  Purchase of certificate of deposit     (249,000)            0             0
  Purchase of marketable securities             0        (1,184)            0
  Property and equipment acquisitions  (2,825,310)    1,357,925)     (533,484)
                                        ---------                  ----------

Net cash used in investing activities  (3,048,114)   (1,345,248)     (464,249)
                                        ---------     ---------    ----------


Cash flows from financing activities:
  Proceeds from issuance of
     long-term debt                     9,338,208     5,648,321     6,809,928
  Principal payments of long-term debt (5,647,313)   (5,796,331)   (7,187,159)
  Loan costs paid on refinance                  0        (3,000)            0
  Redemption of preferred stock           (24,500)            0             0
  Payments of dividends                    (1,960)       (5,834)       (6,460)
                                       ----------    ----------     ---------

Net cash provided by (used in)
  financing activities                  3,644,435      (156,844)     (383,691)
                                       ----------    ----------    ----------


Net increase (decrease) in cash
  and cash equivalents                     27,683        34,898      (295,095)
Cash and cash equivalents - beginning
  of year                                 122,322        87,424       382,519
                                       ----------     ---------    ----------

Cash and cash equivalents - end
  of year                              $  150,005     $ 122,322    $   87,424
                                       ==========     =========    ==========

   The accompanying notes are an integral part of these financial statements

                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.   Summary of Significant Accounting Policies

The consolidated financial statements include the amounts of Winter Sports, Inc.
and its wholly-owned subsidiaries, Big Mountain Water Company, Big Mountain
Development Corporation and Big Mountain Resort Reservations.  All significant
intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with generally accepted
accounting principles 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.

Property and equipment is stated at cost.  Additions and betterments are
capitalized, while maintenance and repairs are expensed as incurred.  For
financial reporting purposes, depreciation is provided for by the straight-line
method over estimated useful lives.  Accelerated depreciation methods are used
for tax purposes.  Gains and losses from the sale or retirement of assets are
included in other income (expense).

Land development in progress is stated at the lower of cost or net realizable
value.  All direct and indirect costs related to land development (including
land acquisition costs, land improvement and construction costs for clearing and
grading, roads, utility systems, architectural, surveying, engineering and legal
fees) are charged to construction in progress.  In addition, the Company
capitalizes interest costs related to qualified expenditures on projects under
development.  The aggregate development cost is allocated to lots for sale based
upon the relative sales value and is charged to cost of revenues as the
individual lot sales are recognized as revenue.  Costs not related to land
development are charged to operations as incurred.

Interest is capitalized in connection with the construction of major facilities
and development of land.  The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the assets useful life, or is
allocated to lots for sale based upon the relative sales values and is charged
to cost of sales as the individual lot sales are recognized as revenue.  In
1998, 1997 and 1996, $22,628, $7,730 and $6,106 of interest was capitalized,
respectively.

Profit from the sale of real estate is accounted for under the full accrual
method whereby, gain is not recognized until the collectibility of the sales
price is reasonably assured and the earnings process is virtually complete.
When a sale does not meet the requirements for income recognition, gain is
deferred until those requirements are met.

Advertising costs are expensed as incurred.  Advertising expense was $807,906,
$632,709 and $532,158 in 1998, 1997 and 1996, respectively.

For purposes of the Consolidated Statements of Cash Flows, the Company considers
all highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.

Inventories are stated at the lower of cost or market value on a first-in,
first-out method.

Loan costs, included in Other Assets, are being amortized ratably over the term
of the loans.  Organization costs are being amortized on a straight-line basis
over a sixty month period.

On September 9, 1995, the Company received approval from the U.S. Forest Service
for the Final Environmental Impact Statements (EIS) for The Big Mountain Ski and
Summer Resort.  The Company is amortizing the costs of the EIS over a fifteen
year period.

NOTE 2.   Business Segment Information

In 1998, 1997 and 1996, the Company operated principally in two industries, the
operation of a ski area and the sale of real estate.  Operations in the ski area
industry involve developing and providing ski recreation and related services to
skiers.  Operations in the sale of real estate involve the development of land
into single-family lots, townhomes, townhome lots and condominiums for the
purpose of sales to interested parties.

Financial information by industry segment for 1998, 1997 and 1996 is summarized
as follows:

                                    Ski Area      Real Estate    Consolidated
                                    --------      -----------    ------------

1998
  Revenue                        $  8,334,806    $    921,792    $  9,256,598
  Operating profit (loss)        $   (304,603)   $    146,856    $   (157,747)
  Depreciation and amortization  $  1,192,987    $     15,670    $  1,208,657
  Identifiable assets            $ 14,228,919    $  3,823,866    $ 18,052,785
  Capital expenditures           $  2,825,310    $          0    $  2,825,310

1997
  Revenue                        $  9,422,316    $    728,208    $ 10,150,524
  Operating profit               $    374,365    $    311,206    $    685,571
  Depreciation and amortization  $  1,072,166    $     16,522    $  1,088,688
  Identifiable assets            $ 12,362,594    $  1,656,615    $ 14,019,209
  Capital expenditures           $  1,357,925    $          0    $  1,357,925

1996
  Revenue                        $  9,228,575    $    281,254    $  9,509,829
  Operating profit               $    374,644    $     13,833    $    388,477
  Depreciation and amortization  $  1,033,698    $     18,230    $  1,051,928
  Identifiable assets            $ 12,192,293    $  1,498,482    $ 13,690,775
  Capital expenditures           $    533,484    $          0    $    533,484

NOTE 3.   Property and Equipment

                                     Asset
                                   Life Years            1998            1997
                                   ----------            ----            ----


Leasehold improvements                   30      $    798,083   $     675,573
Buildings and grounds                 10-30         6,847,775       6,782,591
Lifts                                 10-15         9,309,420       6,540,287
Machinery and equipment                3-25         4,343,529       3,742,171
Furniture and fixtures                 3-10           522,956         524,415
Water system                          10-25           643,420         643,420
                                                 ------------   -------------

Total property and equipment                     $ 22,465,183   $  18,908,457
                                                 ============   =============

NOTE 4.   Other Assets

Other assets at May 31, 1998 and 1997 are summarized as follows:

                                                         1998            1997
                                                         ----            ----


Loan costs, net of amortization                     $  28,222      $   31,357
Planning and development - long-term                   58,119          58,119
Noncurrent deferred tax asset                          35,696          37,216
Environmental Impact Statement, net of amortization   137,067         148,295
Other long-term assets                                 22,940          29,824
                                                    ---------      ----------

Total other assets                                  $ 282,044      $  304,811
                                                    =========      ==========

NOTE 5.   Notes Payable

Long-term debt at May 31, 1998 and 1997 is summarized as follows:

                                                         1998             1997
                                                         ----             ----

Bank of America National Trust and Savings         $6,173,880       $2,644,050
Association, doing business as Seafirst Bank
(Seafirst) revolving, reducing term loan with
initial $8,750,000 availability decreasing by
$650,000 each year beginning June 1, 1998.
Mandatory principal reductions are required on
outstanding balances above amounts available.
Interest at or below banks' reference rate.
Interest rate at May 31, 1998 and 1997 was 7.41%
and 7.56%, respectively. Secured by all ski area
operation real and personal property and
assignment in trust of all U.S. Forest Service
special use permits.

Whitefish Credit Union construction line of
credit with $3,900,000 of availability.
Interest at New York prime plus 0.5%.  Interest
rate at May 31, 1998 was 9.00%.  Secured by
Kintla Lodge land, building & equipment.  Matures     161,065                0
September 1, 1999.

Total long-term debt                               $6,334,945       $2,644,050

Mandatory reductions of long-term debt are as follows:

  For the Year Ending May 31,               Amount
--------------------------------------------------


              1999                    $         0
              2000                        161,065
              2001                              0
              2002                         23,880
              2003                        650,000
       2004 and beyond                  5,500,000
                                      -----------

                                      $ 6,334,945
                                      ===========


The Seafirst loan agreement contains covenants that require minimum net worth, a
fixed charge coverage ratio and restrict investment, disposition of assets,
capital expenditures, outside borrowing and payment of dividends.  At May 31,
1998 and 1997, the Company was in technical default of the fixed asset addition
covenant required by the loan agreement.  The Company requested and has obtained
a written waiver of violation for the years ended May 31, 1998 and 1997.

A standby letter of credit issued by Seafirst in the amount of $114,828 reduces
the amount available under the revolving agreement at May 31, 1997.  At May 31,
1998 and 1997, $2,576,120 and $5,991,122 respectively, were unused and available
for borrowing on the Seafirst Line of Credit.  At May 31, 1998, $3,738,935 was
unused and available for borrowing on the Whitefish Credit Union Line of Credit.

NOTE 6.   Capital Stock and Additional Paid-In Capital

Preferred stock is non-voting and subject to redemption at the Company's option
at any time upon payment of not less than the $100 par value and any accumulated
dividends.  At May 31, 1998, the Company redeemed at par value all of its
outstanding preferred shares.

The computation of earnings per common share is based on net income for the year
after deducting dividends paid on preferred stock of 1998-$1,960, 1997-$980 and
1995-$980.  The number of shares used in the computation is the weighted average
number of common shares considered to be outstanding during the year.  In 1996
the Company issued a 4% common stock dividend.

                                               1998          1997         1996
                                               ----          ----         ----

Cash dividends paid per preferred share     $  8.00       $  4.00      $  4.00
Cash dividends paid per common share        $  0.00       $  0.00      $  0.00

Changes in capital stock and additional paid-in capital are summarized as
follows:

                        Preferred Stock           Common Stock      Additional
                        ---------------           ------------

                        Number                  Number                 Paid-in
                     of Shares      Amount   Of Shares      Amount     Capital
                     ---------      ------   ---------      ------     -------


Balance at 5/31/95         245    $ 24,500     932,948   2,978,597      20,519
4% Stock Dividend                               36,970     582,277
Balance at 5/31/96         245      24,500     969,918   3,560,874      20,519
4% Stock Dividend                               38,450     538,300
Balance at 5/31/97         245      24,500   1,008,368   4,099,174      20,519
Preferred Stock
Redeemed                  (245)    (24,500)
Balance at 5/31/98           0    $      0   1,008,368   4,099,174      20,519
==============================================================================

NOTE 7.   Income Taxes

Income taxes (credits) consist of the following:

                                               1998         1997         1996
                                               ----         ----         ----

Current
  Federal                                 $(231,009)   $ 163,396    $  29,467
  Fuel tax credit                            (1,583)      (2,212)      (2,136)
                                          ---------    ---------    ---------

                                           (232,592)     161,184       27,331
  State                                     (42,121)      34,139        7,827
                                          ---------    ---------    ---------

                                           (274,713)     195,323       35,158
Deferred
  Federal                                    18,075     (43,816)       11,037
  State                                       5,025      (8,824)        3,482
                                          ---------   ---------     ---------

Provision for income taxes                $(251,613)  $ 142,693     $  49,677
                                          =========   =========     =========

Temporary differences exist in the computation of income for financial and tax
reporting purposes which gives rise to deferred taxes.  The source of these
differences for the year ended May 31 is as follows:

                                               1998         1997         1996
                                               ----         ----         ----


Depreciation                             $3,157,128   $3,516,095   $3,604,284
Uniform capitalization for income tax      (118,979)    (119,154)    (110,540)
Bad debt reserve                            (55,451)     (67,153)     (42,043)
Vacation allowance                          (53,013)     (53,547)     (44,731)
                                         ----------   ----------   ----------

Total timing differences                 $3,350,685   $3,276,241   $3,406,970
                                         ==========   ==========   ==========

The significant components of Deferred Taxes in the accompanying Balance Sheet
are as follows:

                                               1998         1997
                                               ----         ----


Noncurrent deferred tax liability        $1,361,554   $1,343,227
                                         ----------   ----------

Total deferred tax liability             $1,361,554   $1,343,227
                                         ==========   ==========

Current deferred tax assets              $   51,767   $   55,020
Noncurrent deferred tax asset                35,696       37,216
Valuation allowance                               0            0
                                         ----------   ----------

Net deferred tax assets                  $   87,463   $   92,236
                                         ==========   ==========

The difference between the Company's effective income tax rate and the statutory
Federal income tax rate is as follows:

                                              1998         1997         1996
                                              ----         ----         ----


Income before taxes                     $ (588,484)   $  373,313   $  163,002
Statutory federal rate                          34%          34%          27%
Increased (decreases) resulting from:
  State tax at statutory rate                    7%           7%           7%
  Other (net)                                    2%          (3%)         (4%)
                                        -----------   ----------   ----------

Effective tax rate                              43%          38%          30%
                                        ===========   ==========   ==========

NOTE 8.   Supplemental Cash Flow Disclosures

Supplemental cash flow information is as follows:

Cash paid during the year for:                1998          1997         1996
                                              ----          ----         ----


  Interest (net of capitalized)         $  347,779    $  232,849   $  191,379
  Income taxes (net of refunds)         $  157,832    $  (90,948)  $  234,038

Noncash operating and financing activities in 1998 consist of financing
a portion of the increase on Construction in Progress through $453,301
of trade accounts payable.

NOTE 9.   Special Use Permits
The operation of ski lifts and trails involves the use of U.S. Forest Service
lands located in the Flathead National Forest.  Winter Sports, Inc. is licensed
by special use permits issued by the U.S. Forest Service which expire December
21, 2015.  Charges to income for fees paid, based on the Graduated Rate Fee
System set by the U.S. Forest Service were $130,998, $104,376 and $133,650 for
1998, 1997 and 1996, respectively.

NOTE 10.   Employee Benefit Plans

The Company maintains a 401(k) Salary Deferred Plan that covers substantially
all full-time employees meeting minimum requirements.  Plan benefits are limited
to the participants' vested share of plan contributions, earnings and
forfeitures.  All enrolled employees contribute a minimum of 2% of their gross
compensation.  The Company contributes a matching 2%.  The plan is currently
100% funded.  Company contributions to the Plan and charges to income for 1998,
1997 and 1996 amounted to $34,320, $32,560 and $34,483 respectively.

NOTE 11.    Related Party Transactions

Revenues are derived and expenses incurred as a result of transactions with
executive officers, stockholders and directors of Winter Sports, Inc. or
companies controlled by them or parties which can significantly influence
management or the operating policies of the transacting parties.  For reporting
purposes, shareholders holding 5% or more of the Company's common stock are
considered to be related parties who may, through their ownership, significantly
influence transactions with the Company.

Related party transactions are summarized as follows:

                                               1998         1997         1996
                                               ----         ----         ----

Revenue received
  Rent and lease revenue                 $   32,500   $   33,850   $   34,331
  Management fee                         $   27,500   $   31,500   $   31,500
  Other revenue                          $   42,417   $   93,148   $  196,312
Expenses incurred
  Memberships                            $    5,900   $   12,000   $    5,000
  Legal fees                             $   22,538   $   28,391   $   53,663
  Contract labor                         $   41,488   $   53,592   $   25,431
  Marketing                              $    5,867   $        0   $        0
  General and administrative             $    5,937   $        0   $    1,686
Amounts due to and from related parties
  Accounts receivable                    $    5,432   $   20,529   $   23,750
  Accounts payable                       $   79,065   $    8,981   $   11,489

NOTE 12.   Stock Bonus and Stock Options

Prior to August, 1996, the Company had entered into employment agreements with
its President which provided for the award of common stock each year dependent
upon achievement of certain performance objectives.  In 1996 and 1995, 0 and 0
shares were awarded, respectively.

Under prior employment agreements, non-qualified and incentive options to
purchase the Company's common stock had been granted to the President.
Incentive options were dependent upon achievement of certain performance
objectives.  In each case, the purchase price was the bid price for the
Company's common stock at the date of the grant. All options granted expire five
years from the date of the underlying employment agreement.  The Company has
agreed to repurchase all or any portion of the stock purchased through exercise
of options at a price equal to the purchase price for each stock plus $3.00 per
share.

On August 1, 1992, the Company entered into an employment agreement with its
President with a term ending July 31, 1996.  Upon the successful conclusion of
each anniversary of the agreement, the President is entitled to a non-qualified
stock option allowing him to purchase 6,000 shares of the Company's common stock
according to the following schedule:  after 7/31/93, $14.00 per share; after
7/31/94, $15.00 per share; after 7/31/95, $16.00 per share; and after 7/31/96,
$17.00 per share.  Each year's allocation of shares may be purchased for a
period of five years beginning on each anniversary date of this agreement.  The
Company does not guarantee purchase of the shares of stock pursuant to this
option.

On July 1, 1994 and December 1, 1994 respectively, the Company entered into two
year employment agreements with its Chief Operating Officer and its Treasurer.
Each officer was granted a non-qualified stock option to purchase
2,000 shares of the Company's common stock at the bid price on the respective
dates granted.  The options expire five years from the grant date.  The exercise
prices  established  on  the  grant  dates  were  $19.50 and $17.00,
respectively. The Chief Operating Officer and the Treasurer left the employment
of the Company in June of 1996 and December of 1995, respectively.

Management has made a determination that the stock option plan does not meet the
requirements to recognize compensation costs under current accounting standards.

Stock option transactions are summarized as follows:
                                                Option Price         Number
                                                   Per Share       Of Shares
                                              --------------       ---------

Outstanding, May 31, 1994                      12.50 - 14.00          12,000
  Granted                                      15.00 - 19.50          10,000
Outstanding, May 31, 1995                      12.50 - 19.50          22,000
  Granted                                              16.00           6,000
  Expired                                              12.50          (6,000)
Outstanding, May 31, 1996                      14.00 - 19.50          22,000
  Granted                                              17.00           6,000
Outstanding, May 31, 1997                      15.00 - 19.50          28,000
Outstanding, May 31, 1998                     $15.00 - 19.50          28,000
                                               =============       =========

NOTE 13.  Commitments and Contingencies

From time to time, the Company has been a defendant in unrelated lawsuits filed
by individuals who are each seeking damages of specified amounts, for alleged
personal injuries resulting from accidents occurring on the Company's property
or while skiing.  The Company's insurance carrier provides defense and coverage
for these claims and the Company's participation has been limited to its policy
deductible.  Such amounts are charged to General and Administrative expense upon
settlement.

In January of 1997 the Company settled a wrongful discharge claim with a former
employee.  The settlement provides for a one-time payment of cash and was
charged against income in the third quarter of the fiscal year ending May 31,
1997.

During 1998, the Company received a final determination from the U.S. Forest
Service (USFS) regarding the USFS's audit of the Company's records for the fees
paid to the USFS for fiscal years 1992, 1993, 1994 and 1995.  The final
determination of additional fees owed was $34,891 and was charged against income
in 1998.

The Company was contingently liable for a standby letter of credit in the amount
of $114,828 at May 31, 1997.

Financial instruments that potentially subject the Company to credit risk
consist of cash balances in one financial institution in excess of the Federal
Deposit Insurance Corporation's $100,000 limit.
Other potential credit risks to the Company consist of trade receivables.  The
Company grants credit to customers for group banquets and retail inventory
sales, most of whom are located in the northwest United States.

NOTE 14.  Other Income and Expense

The Company periodically reviews its master plan for long-term resort
development.  During 1998 and 1997, the Company charged against income $75,739
and $129,996 of planning costs included in Construction in Progress that were
not expected to be utilized within the foreseeable future.

Other Income (Expense) included in the Consolidated Statements of Income consist
of the following:

                                            1998         1997         1996
                                            ----         ----         ----


Loss on sale or retirement of assets   $ (77,563)   $(136,557)   $  (1,122)
Other                                      5,167        9,318           40
                                       ---------    ---------    ---------

Total other income (expense)           $ (72,396)   $(127,239)   $  (1,082)
                                       =========    =========    =========

Item 8.   Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosures

The Company has had no disagreements with its accountants on accounting or
financial disclosures.

                                    Part III
                                    --------


Item 9.   Directors and Executive Officers of the Registrant

Incorporated by reference from the Company's definitive proxy statement dated
September 15, 1998 to be filed with the Securities and Exchange Commission for
the annual meeting of shareholders to be held on October 13, 1998.

Item 10.  Executive Compensation

Incorporated by reference from the Company's definitive proxy statement dated
September 15, 1998 to be filed with the Securities and Exchange Commission for
the annual meeting of shareholders to be held on October 13, 1998.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

Incorporated by reference from the Company's definitive proxy statement dated
September 15, 1998 to be filed with the Securities and Exchange Commission for
the annual meeting of shareholders to be held on October 13, 1998.

Item 12.  Certain Relationships and Related Transactions

Incorporated by reference from the Company's definitive proxy statement dated
September 15, 1998 to be filed with the Securities and Exchange Commission for
the annual meeting of shareholders to be held on October 13, 1998.


                                    Part IV
                                    -------


Item 13.  Exhibits and Reports on Form 8-K

(a)  Documents Filed as Part of this Report:                            Page
                                                                        ----


     (1) Financial Statements:
          Independent Auditors' Report...............................

          Consolidated Balance Sheets as of May 31, 1998 and 1997....

          Consolidated Statements of Income and Retained Earnings
              for the Years Ended May 31, 1998, 1997 and 1996..........

          Consolidated Statements of Cash Flows for
             the Years Ended May 31, 1998, 1997 and 1996..............

          Notes to Consolidated Financial Statements.................


All other schedules are omitted because they are not applicable for the
required information as shown in the Consolidated Financial Statements
or Notes thereto.

     (2) Exhibits                                                      Page
                                                                       ----


          21.1   Subsidiaries of the Company.........................

 (b) Reports on Form 8-K:

     No reports on Form 8-K have been filed by the registrant during the last
     quarter of the period covered by this report.

                                   Signatures
                                   ----------


In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:

                                  WINTER SPORTS, INC.


                                  By  /s/ Michael J. Collins
                                         Michael J. Collins,
                                         President and Chief Executive Officer
                                         (Principal Executive Officer)
                                         Date:  August 27, 1998

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



/s/ Charles R. Abell         Director                      August 27, 1998
Charles R. Abell

/s/ Brian T. Grattan         Director                      August 27, 1998
Brian T. (Tim) Grattan

/s/ Dennis L. Green          Director and Chairman         August 27, 1998
Dennis L. Green              of the Board

/s/ Charles P. Grenier       Director                      August 27, 1998
Charles P. Grenier

/s/ Jerry J. James           Director                      August 27, 1998
Jerry J. James

/s/ Michael T. Jenson        Director                      August 27, 1998
Michael T. Jenson

/s/ Darrel R. Martin         Director                      August 27, 1998
Darrel R. (Bill) Martin

/s/ Michael J. Muldown       Director                      August 27, 1998
Michael J. Muldown

/s/ Calvin S. Robinson       Director                      August 27, 1998
Calvin S. Robinson

/s/ Joann M Gould            Principal Accounting Officer  August 27, 1998
Joann M. Gould

/s/ Thomas E. Cullen         Principal Financial Officer   August 27, 1998
Thomas E. Cullen

(c)  Exhibits:
     --------



     3.1  Restated Articles of Incorporation and Articles of Amendment
          to the Articles of Incorporation                               (2)

     3.2  By-Laws                                                        (3)

     3.3  Fifth Amendment to By-Laws                                     (4)

     3.4  Sixth Amendment to By-Laws                                     (4)

     3.5  Seventh Amendment to By-Laws                                   (1)

     10.1 Employment Agreement between Michael Collins and Winter
          Sports, Inc. as of August 1, 1992.                             (5)

     10.2 Corrected Employment Agreement between Larry H. Hutchinson
          and Winter Sports, Inc. as of July 6, 1994.                    (2)

     10.3 Loan Agreement between Seattle-First National Bank and
          Winter Sports, Inc. dated November 14, 1994.                   (6)

     10.4 Employment Agreement between Steven P. Benner and Winter       (7)
          Sports, Inc. as of February 24, 1995.

     10.5 Employment Agreement between Michael Collins and Winter        (8)
          Sports, Inc.  as of August 1, 1996

     10.6 Employment Agreement between Michele Reese and Winter          (9)
          Sports, Inc. as of December 22, 1997

     10.7 Employment Agreement between Adora Maguire and Winter          (1)
          Sports, Inc. as of May 1, 1998

     21.1 Subsidiaries of the Company                                    (1)

     (1)  Filed herewith.

     (2)  Incorporated by reference from the Company's Form 10-KSB for
          fiscal year ended May 31, 1995.

     (3)  Incorporated by reference from the Company's Form 10-KSB for
          fiscal year ended May 31, 1987.

     (4)  Incorporated by reference from the Company's Form 10-KSB for
          fiscal year ended May 31, 1991.

     (5)  Incorporated by reference from the Company's Form 10-QSB for
          the quarter ended September 6, 1992.

     (6)  Incorporated by reference from the Company's Form 10-QSB for
          the quarter ended December 11, 1994.

     (7)  Incorporated by reference from the Company's Form 10-QSB for
          the quarter ended March 5, 1995.

     (8)  Incorporated by reference from the Company's Form 10-QSB for
          the quarter ended September 15, 1996.

     (9)  Incorporated by reference from the Company's Form 10-QSB for
          the quarter ended March 1, 1998.

                           Exhibit 21.1  Subsidiaries
                           --------------------------


        Name                                  Jurisdiction of Incorporation
        ----                                  -----------------------------


Big Mountain Water Co.                            Montana

Big Mountain Development Corporation              Montana

Big Mountain Resort Reservations                  Montana