|SECURITIES AND
EXCHANGE COMMISSIONWashington, DC 20549FORM 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, 2002, 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 $13,042,182.


Approximate aggregate
market value of the voting stock held by non-affiliates of the registrant as of
August 16, 2002 was $15,324,354. As of August 16, 2002, the number of shares
outstanding of the registrants common stock, no par value, was 988,668.


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

|Location in
      Form 10-KSB                          |  | Incorporated Document                                                                                                                                                              
|------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                       |  |                                                                                                                                                                                    
|Part III, Item
      9, Item 10
      Item 11, Item 12 |  | Proxy Statement dated
      September 20, 2002 to be filed with the Securities and Exchange Commission
      for the annual meeting of shareholders to be held on October 15, 2002.

|Total number of pages, including
cover page 36        Exhibit Index - page 34


1
|---------------------------------------------------------------------------------

|WINTER SPORTS, INC.Form
10-KSBTable of Contents
|-----------------------------------------------

|                                                                                                                                   | Page
|---------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                   |     
|                                                                                                                                   |     
|Part
      I                                                                                                                       |     
|                                                                                                                                   |     
|Item
      1 -   Business                                                                                                          | 3   
|                                                                                                                                   |     
|Item
      2 -   Properties                                                                                                        | 5   
|                                                                                                                                   |     
|Item
      3 -   Legal Proceedings                                                                                                 | 7   
|                                                                                                                                   |     
|Item
      4 -   Submission of Matters to a Vote of Security Holders                                                               | 7   
|                                                                                                                                   |     
|Part
      II                                                                                                                      |     
|                                                                                                                                   |     
|Item
      5 -   Market for Common Stock and Related Stockholder Matters                                                           | 8   
|                                                                                                                                   |     
|Item
      6 -   Managements Discussion and Analysis of Financial Condition
                      and
      Results of Operations | 8   
|                                                                                                                                   |     
|Item
      7 -   Financial Statements                                                                                              | 16  
|                                                                                                                                   |     
|Item
      8 -   Changes in and Disagreements with Accountants on Accounting
                      and
      Financial Disclosure  | 32  
|                                                                                                                                   |     
|Part
      III                                                                                                                     |     
|                                                                                                                                   |     
|Item
      9 -   Directors and Executive Officers of the Registrant                                                                | 33  
|                                                                                                                                   |     
|Item
      10 - Executive Compensation                                                                                             | 33  
|                                                                                                                                   |     
|Item
      11 - Security Ownership of Certain Beneficial Owners and
                      Management                               | 33  
|                                                                                                                                   |     
|Item
      12 - Certain Relationships and Related Transactions                                                                     | 33  
|                                                                                                                                   |     
|Part
      IV                                                                                                                      |     
|                                                                                                                                   |     
|Item
      13 - Exhibits and Reports on Form 8-K                                                                                   | 33  
|                                                                                                                                   |     
|Exhibit
      Index                                                                                                                | 33  
|                                                                                                                                   |     
|Exhibits                                                                                                                           | 35  
|                                                                                                                                   |     
|Signatures                                                                                                                         | 34  

|2
|-

|Part I


Item 1. Business


Winter Sports, Inc. d/b/a
Big Mountain Resort (the Company or Big Mountain), was
organized in 1947 as a Montana corporation, for the purpose of developing and
operating a ski resort at 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, ancillary services, management agreements 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 with the creation of Big Mountain Development Corporation. The Company
owns approximately 860 acres in and around its base area which is available for
resort activities as well as commercial and residential development.


The ski facilities include
nine chairlifts and two T-bar lifts, which service approximately 45 miles of ski
slopes and trails. In addition to the skiing facilities, the Company also
operates the Hibernation House (hotel facilities), 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 (retail) located at the summit of the mountain and the
Outpost (ski shop and skier services operation) at the lower village near the
lower parking lots. The Company also operates a property management business.
The Company has leased to concessionaires food and beverage operations, a
day-care center, a photography shop, a snowmobile operation and sleigh and wagon
rides. Revenues derived by the Company from these ancillary operations, other
than the ski facilities and real estate, represented 42.2%, 33.26% and 30.44% of
total revenues in 2001/02, 2000/01 and 1999/00, 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.


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. For more than 50
years, 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 early June through early October. The summer operation
consists of a chairlift/gondola ride to the summit for sightseeing, hiking,
biking, rental and retail, hotel and recreational facilities and activities.


The Companys business
is primarily seasonal. A significant portion of its gross revenue is derived
during the winter ski season. Real estate sales have occurred on a year-round
basis in the past. The Company maintains a year-round staff of approximately 80
employees. During the peak ski season, approximately 450 persons are employed.
During the limited summer operations, approximately 130 persons are employed.


Located at or near the base
area and on the access road to Big Mountain are privately owned condominium
developments and a number of private homes and town homes, many of which are
available for public rental. Other accommodations are available in the Flathead
Valley. The Resort is served by an all weather secondary highway. Glacier Park
International Airport, located in Kalispell, MT, is 20 miles from the village
core.


3
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|The ski resort business is
highly competitive. The success of 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, the effects of September 11, 2001 and
any related events and the Canadian exchange rate. The profitability and growth
of 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 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 snowmaking and grooming operations.


The land occupied by the
Summit House and the Companys lift sites are subject to a 38-year term,
special-use permit from the Forest Service expiring December 31, 2038, 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 certain
income. Such rates are adjustable every year. The current rate is 1.96% of
applicable revenues. Payments for fiscal year 2002 were $95,319. Payments in
2001 and 2000 were $91,596 and $117,654, 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 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 had 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 real estate activities 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. The Company dissolved
this entity during fiscal year 2001 due to no activity.


4
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.


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 town
homes 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 eight-mile mountain
bike trail from the summit to the base area, the purchase of two guest 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.


In 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 which transports 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, Big Mountain Development Corporation 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 five commercial condominium units.


During 1998-99 the Company
replaced the liner in its primary upper-mountain snowmaking reservoir, replaced
the haul rope on its Glacier Chaser chairlift, installed new underground fuel
tanks, purchased a new Bombardier groomer for its front-line fleet and replaced
approximately 33% of its rental inventory of skis, snowboards and related items.
The Company also finished construction of Kintla Lodge.


In fiscal year 2000, the
Company remodeled its guest services building, completed a turnaround at the
entrance of the base area village, replaced approximately 33% of its rental
inventory of skis, snowboards and related items. The Company also installed a
fiber optic backbone and T-1 line to enhance communications throughout the
Company.


5
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|For the fiscal year ending
May 31, 2001, the Company implemented an integrated resort-wide ticketing
software package. This has allowed the Company to achieve better demographics of
the guest at the resort as well as give the Company the opportunity to provide a
more seamless experience for the guest. The Company also installed a new T-Bar
lift which gives access to approximately 20 acres of new terrain on the eastside
of the mountain. Improvements were made to the Hibernation House, an economy
hotel-like property owned by the Company. Three units were purchased in the
Alpinglow condominium building in the village core. These units will be placed
in the rental pool. A new groomer was added to the existing fleet as well as
replacement of some of the computers, rental inventory, and vehicles. The
Company also invested in new activities for the guest to enjoy while visiting
the mountain throughout the year. A mechanical bull was added to one of the
concessionaires facilities; archery, new mountain bike trails as well as
Thrill Sleds were added.


On March 19, 2001, the
Company announced that Hines Resorts, a division of international real estate
firm, Hines, was selected as the developer for the village at Big Mountain Ski
& Summer Resort. Plans call for a pedestrian-scale village with more than
700 residential/lodging units, at least one hotel, condominiums and town homes,
employee housing, as well as additional commercial space and a conference
center.


On May 1, 2001, the Company
purchased an existing property management company which managed properties
adjacent to and in the village core. The Company entered into a non-compete
agreement with the former owners. The Company also retained one of the former
owners in the role of a consultant for a period of one year from the date of
sale. The Company plans to continue operating the business as it had been in the
past. With this acquisition, the Company performs property management services
for approximately 200 properties in the village area.


During the past fiscal
year, the Company added a 2500 square foot meeting room to the Outpost facility.
This room allows an additional potential for group bookings. The Company began
an expansion of its snowmaking capability along the Chair 2 ski trails. The
Company expects to complete this project during the current fiscal year with the
completion of a seven million gallon reservoir near the upper terminal. The
Company also installed a triple chairlift, which services the beginner terrain
for skiers and snowboarders just learning their respective sport. This lift
replaced an old platter lift located at the site. The chairlift allowed the
Company to expand the beginner terrain available.


Toward the end of fiscal
year 2002, the Company began development of a new activity called Walk in the
Tree Tops. This activity is a half day activity in which the participant embarks
on a guided tour to learn about plants, trees and wildlife while suspended in
the air. This adventure also provides some spectacular views of the mountain and
valley, previously not seen before. This activity is the first in a series of
new activities the Company is planning to phase in over the next five years. It
is hoped that these activities will appeal to the guests and provide new ways of
enjoying their time at the resort.


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. All of the
Companys ski resort assets are encumbered to secure the Companys
line of credit. See Note 6 of the Notes to Consolidated Financial
Statements.


6
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|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.     |  |           
|Swift
      Creek       |  | Double
      Chair |  | #2             |  | 1,116
      ft.     |  |           
|Tenderfoot              |  | Triple
      Chair |  | #3             |  | 434
      ft.       |  |           
|Great
      Northern    |  | Triple
      Chair |  | #4             |  | 1,360
      ft.     |  |           
|Glacier
      View      |  | Triple
      Chair |  | #5             |  | 840
      ft.       |  |           
|Village
      Lift      |  | Quad
      Chair   |  | #6             |  | 280
      ft.       |  |           
|Big Creek
      Express |  | Quad
      Chair   |  | #7             |  | 1,216
      ft.     |  |           
|Hellroaring             |  | Triple
      Chair |  | #11            |  | 1,281
      ft.     |  |           
|Easy
      Rider        |  | Triple
      Chair |  |                |  | 139
      ft.       |  |           
|T-Bar
      #1          |  | T-bar              |  |                |  | 572
      ft.       |  |           
|T-Bar
      #2          |  | T-Bar              |  |                |  | 400
      ft.       |  |           
|Powder
      Puff       |  | Rope
      Tow     |  |                |  | 25 ft.              |  |           

|* |  | 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               
|                                         |                     
|Ski
      Lodge                          | 17,494              
|Chalet                                   | 11,428              
|Alpine
      Lodge                       | 10,272              
|Bierstube                                | 3,860               
|Big
      Mountain Ski Shop              | 8,928               
|Hibernation
      House                  | 15,360              
|Summit
      House                       | 14,400              
|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                   | 11,404              
|Marketing
      Building                 | 1,440               
|Kintla
      Lodge Retail Space          | 6,526               
|Sherpa
      Pool                        | 2,850               
|GVPM
      Office building               | 3,892               

|Item 3. Legal
Proceedings


The information appearing
in Note 14 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, 2002.


7
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|Part II


Item 5. Market for
Common Stock and Related Stockholder Matters


The Companys common
stock is currently traded on the NASDAQ Over The Counter Electronic Bulletin
Board under the symbol WSKI. The Company has been investigating the
options available once the Over The Counter Electronic Bulletin Board is
replaced during calendar year 2003.


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, markdown or commissions and may not
necessarily represent actual transactions.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |         |  | 2002  |  | 2001 
| | ------- |  | ----- |  | -----
| |         |  |       |  |      
| | Quarter |  | High  |  | Low  
| |         |  |       |  |      
| | 1st     |  | 19.50 |  | 13.00
| | 2nd     |  | 20.50 |  | 15.00
| | 3rd     |  | 19.00 |  | 16.00
| | 4th     |  | 18.00 |  | 15.00

|No cash dividends have been
paid on the Companys common stock since 1984. The declaration of dividends
is subject to certain restrictions contained in the loan agreement between Bank
of America National Trust and Savings Association 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 Board of
Directors authorized a stock repurchase program on May 19, 2000. Under this
program the Company could repurchase up to 40,000 shares of the Companys
outstanding common stock at prevailing market prices from time to time over the
next six to eight months. The Board of Directors renewed this program on
December 20, 2000 for an additional six month time period. The program ended
June 19, 2001. The Company repurchased 19,700 shares under this program.


The approximate number of
shareholders of record for the Companys common stock as of August 16, 2002
was 719.


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


All statements, other than
statements of historical fact contained herein constitute Forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act) and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act). These
forward statements are not based on historical facts, but rather reflect the
Companys current expectations concerning future results and events.
Similarly, statements that describe the Companys objectives, plans or
goals are or may be forward-looking statements. Such forward-looking statements
involve a number of risks and uncertainties. The Company has tried wherever
possible to identify such statements by using words such as
anticipate, assume, believe,
expect, intend, plan, and words and terms
similar in substance in connection with any discussion of operating or financial
performance. In addition to factors discussed above, other factors that could
cause actual results, performances or achievements to differ materially from
those projected include, but are not limited to, the following: general business
and economic conditions, both regionally and nationally; weather and snow
conditions; the changes in the visitation habits of travelers as a result of
September 11th, related events thereafter and the Canadian exchange
rate; and other factors listed from time-to-time in the Companys documents
filed by the Company with the Securities Exchange Commission. The
forward-looking statements included in the document are made only as of the date
of this document and under Section 27A of the Securities Act and Section 21E of
the Exchange Act, the Company does not have or undertake any obligation to
publicly update any forward-looking statements to reflect subsequent events or
circumstances.


8
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|CRITICAL ACCOUNTING POLICIES AND
ESTIMATES


The Companys
discussion and analysis of its financial condition and results of operations are
based upon the Companys consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles.


The Company believes
certain accounting policies to be critical due to the estimation process
involved in each. The Company records season pass revenue as it is earned. The
Company has a ticketing system which scans each person who accesses the chair
lifts. A portion of the season pass revenue is recognized as revenue each day
that the pass holder accesses the lifts. Property management associated revenue
is recognized when the guest checks out and/or at the end of each accounting
cycle, whichever occurs first on a unit by unit basis. The Company, under a
development agreement with Hines Resorts, will from time to time sell parcels of
land. The Company is recognizing any gain on the sale of these parcels under the
cost recovery method. Under this method, the gain is unrecognized until such
time as the basis of the land and the associated costs of the sale. The Company
chose this method as the sale of land during the current fiscal year has been
accomplished through a note which is subordinate to other loans of the
purchasing entity. One of the Companys subsidiaries has invested in two
LLCs. Revenue from these entities is being recognized under the equity method.
The Companys subsidiary does not have day-to-day management control of
these LLCs and does not guarantee any borrowings of the LLC. Depreciation is
computed using the straight-line method for book purposes using the applicable
useful life of the asset. For tax purposes, the Company uses the appropriate tax
life as defined in the Internal Revenue Code. The Company recognizes deferred
tax assets and liabilities based on the differences between the financial
statement carrying amounts and the tax bases of assets and liabilities. The
Company regularly reviews its deferred tax assets for recoverability and
establishes a valuation allowance based on historical income, projected future
taxable income, and expected timing of the reversal of existing temporary
differences.


RESULTS OF OPERATIONS


Revenues


In 2002 consolidated
revenues remained relatively the same overall as in 2001. The Company saw an
increase of 38.4% in Lease, Management and other fees due to the increase in
units that the Company manages under its expanded property management
department. During May, 2001, the Company purchased an existing property
management company at the Resort which increased the number of units managed to
approximately 200. The Company expects this trend to continue as it continues to
find efficiencies in managing more units as well as increasing the number of
units due to continued construction and development in the Resort and the
surrounding lands. Lodging revenue at the Companys economy hotel property
remained relatively the same as last year, while Equipment rental and repair saw
a 5% decrease from 2001. Retail experienced an increase of 40.2% over last year.
This was due in part to additional retail facilities located at the Outpost
facility and also the acquisition of a small retail facility during the time the
property management business was acquired.


9
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|Skier visits increased by
over 14,000 or 5% in 2002. During the fiscal years ending May 31, 2002, 2001 and
2000, the Company offered for a limited time a discounted season pass program.
The Company felt the effects of September 11, 2001 through the change in
traveler behavior. The Resort saw more local and regional skiers and fewer
destination skiers. Destination skiers tend to stay in lodging at the Resort,
rent equipment and take lessons to learn their sport. The Company by seeing an
increase in skier visitation and lower percentage revenue overall, believes that
the type of skier had changed from 2001 to 2002. This was further validated
through the use of the integrated ticketing system the Company purchased a year
ago, which tracks the type of skier visits seen at the Resort. The system
reported more season pass holder visits and a higher percentage of overall skier
visits than the first year of using the system. The Company is using this
information to market the products available at the Resort effectively. The
Company saw improvement in its Canadian markets over last year, but the weakness
of the Canadian dollar still contributes to lower visits than were previously
experienced. 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 local
drive market, the Pacific Northwest, the Midwest and Canada. The Company plans
to continue expanding its marketing programs in all of its markets.


In 2001 consolidated
revenues decreased by $2,271,615 or 15%. The decrease is primarily due to the
decrease in real estate sales of $1,523,206 or 32% from 2000 to 2001. A decrease
in lift revenue of $420,933 or 7.26% from 2000 to 2001 also contributed to the
decrease in revenues. The reduction in available town home lots as well as no
available single-family lots caused the reduction in revenues. Revenue from
Lease, Management and other fees increased by $37,220 or 1.65%. The increase was
due to increased reservations and property management fees. Revenue from
Equipment rental and repair decreased by 8.16% or $63,333 due to decreased skier
visitation during that ski season.


Skier visits decreased by
34,543 or 12% in 2001 due primarily to poor snow conditions during the first
half of the ski season.


Operating Cost & Expenses


Operating costs and
expenses in 2002 were $12,766,645 compared to $12,649,483 in 2001. The $117,162
or 1% increase was primarily attributable to the decrease in Cost of real estate
sales coupled with an increase in Payroll and related expenses due to the
acquisition of the property management business at the end of last fiscal year.
The decrease in Direct expenses  lifts is due to the Company actively
managing the timing of operations of lifts during the early ski season as well
as during lower visitation periods. The Resort is able to enjoy excess lift
rider capacity and is able to operate some lifts on an as needed basis. The
Company anticipates continuing to utilize a staggered opening of its available
lifts during the early ski season. General and administrative costs increased by
24% or $225,680 partially as a result of an increase in its insurance costs.
Most companies have experienced an increase in insurance premiums as a result of
September 11. The ski industry is also experiencing an increase in premiums due
to the level of claims insurance carriers have seen related to terrain park and
half-pipe injuries. The Company is actively working with its insurance provider
to see what can be done to minimize the effect of even more premium increases.
The Company expects, due to the insurance market overall, another increase in
premiums during the current fiscal year.


10
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Interest
Income/Expense and Other Income/Expense


Interest income in 2002 was
$203,317. This income was earned from a note receivable related to the sale of
16 acres earlier in the fiscal year.


In 2002, interest expense
was $489,287 compared to $287,388 in 2001, a 70.3% increase. The increase was
due to a higher level of debt during the fiscal year. The Company purchased 120
acres of land adjacent to the Companys eastern boundary. The purchase was
funded with a five-year term loan at Wall Street Prime plus 1% during the third
quarter of the Companys fiscal year. The Companys line of credit
with Bank of America remained relatively the same at May 31, 2002 as it was at
the same time last year. Capitalized interest during 2002 was $15,232 compared
to no capitalized interest in 2001.


The Company recognized a
portion of the gain on the sale of land during this fiscal year in the amount of
$2,368,737. The Company sold approximately 16 acres during the first quarter of
this fiscal year. The Company is recognizing the gain on the sale of the land
under the cost recovery method. Under this method, the gain is unrecognized
until such time as the basis of the land and the associated costs of the sale of
land have been recovered. During the year, these costs were recovered through
proceeds received and the gain will continue to be recognized as proceeds
continue to be received. The Company expects this to continue through the second
quarter of the current fiscal year.


The Companys
subsidiary is a member of Moose Run II LLC and Northern Lights LLC. In each of
these LLCs, the subsidiary does not participate in the day-to-day operating
activities of these entities, nor does it guarantee any debt of the entities.
The manager of each LLC prepares an annual plan for approval of all members as
to the type of development that is envisioned for the tract of land owned by the
LLC. Each LLC undergoes an independent financial audit of its transactions. The
Companys subsidiary receives a portion of the profit from each of these
entities. The profit is residual, if any, of the sales of real estate product
over the costs of developing that product, including marketing. The
Companys subsidiary is accounting for this investment under the equity
method of accounting, as it will receive 60% of the residual profit generated in
each of these LLCs. The Companys subsidiary has recognized income of
$182,302 this year, which is found on the Income Statement labeled, Equity
in Earnings-LLCs.


Other income (expenses)
increased to $95,514 in 2002 compared to $19,992 in 2001. This is due to income
received from an adjacent landowner under the terms of a legal agreement, in
which the landowner would be responsible for the costs related to construction
of a road on the Companys property where the landowner would have egress.
It was previously unclear when and if this would be collected as well as what
the actual dollar amount that the landowner would be liable for. During 2002,
the Company collected $243,505. This type of revenue is not expected in the
future.


Also included in Other
income (expenses) are amounts which were incurred during the planning of
installing another chair lift on the mountain. The Board of Directors and
management incurred costs of $105,670 during this planning and subsequently
decided not to install the lift. This decision was made as the current lift
capacity is not close to reaching its upper limit. It was decided the Company
could benefit from a different use of the capital it would have taken to install
this lift. The Company also expensed the Environmental Impact Statement (EIS) of
$57,306 as it was determined that the useful life of the Statement had expired.


11
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|During 2000, the Company
received $124,908 from the sale of timber that was selectively thinned from the
Companys land holdings, which began in 1999.


During 2001, interest
expense was $287,388 compared to $388,766 in 2000, a 26.1% decrease. The
decrease was the result of a lower level of debt throughout most of fiscal year
2001 on the Companys operating line of credit as well as lower interest
rates.


Big Mountain Development
Corporation charged against income during 2000, $193,043 of Construction in
progress costs related to planning that are not expected to be utilized within
the foreseeable future.


Income Taxes and Net
Income


The pre-tax net income in
2002 was $2,636,120 compared to pre-tax net loss of ($15,028) in 2001. The
income tax expense generated from the pre-tax net income in 2002 was $1,037,603,
producing an effective tax rate of 39% compared to an effective tax benefit of
(38%) in 2001.


Net income in 2002 was
$1,598,517 or $1.62 per common share up from ($9,328) or ($.01) per common share
in 2001.


The pre-tax net loss in
2001 was ($15,028) compared to a pre-tax net income of $2,385,983 in 2000. The
income tax benefit generated from the net operating loss in 2001 was ($5,700),
producing an effective tax benefit of (38%) compared to an effective tax rate of
37% in 2000.


Net income (loss) in 2001
declined to ($9,328) or ($.01) per common share from $1,497,980 or $1.49 per
common share in 2000.


Deferred Taxes


Long term deferred income
taxes increased to $2,422,153 in 2002 from $1,392,033 in 2001. The noncurrent
deferred tax asset increased by $180,045 to $240,641 in fiscal year 2002 from
$60,596 in 2001. As described in Note 8, temporary differences exist in the
computation of income for financial and tax-reporting purposes, giving rise to
deferred taxes.


LIQUIDITY AND CAPITAL
RESOURCES


At the end of 2002 working
capital was ($1,202,471), an increase of $348,059 from May 31, 2001. The
increase is primarily due to an increase in the Cash available as well as an
increase in Accounts Receivable. The Company realized an increase (although a
smaller one) in Accounts Payable and in Deposits and other unearned revenue.


From mid-March through
mid-May of the last three fiscal years, the Company has offered a limited time
reduced season pass price. The effect of this, is that the Company is able to
generate cash flow toward the end of the fiscal year, while it does not
recognize the revenue until it is actually earned (as the season pass holder
skis). During the last fiscal year, the Company increased the season pass price
by 13%, thus generating a higher level of unearned income. The Company expects
to continue with this program, although it is expected that the price will
probably increase in the coming years.


The Company is seeing a
higher level of Accounts Receivable during fiscal year 2002 than in previous
years, due to the acquisition of the property management business at the end of
last fiscal year. Although the Company is still integrating this area of
business with the existing Company, management feels the property management
area is a critical component to the growth of the Company. As the village core
and surrounding lands are developed, property management is seen as a vehicle to
help guests of the Resort have a good experience, on and off the slopes. As
such, property management is a critical source of on-going revenue, year round.
The Company is actively looking for growth opportunities, such as property
management, which are complementary to the Resort business, to successfully
operate the Resort on a less seasonal, more year round basis.


12
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Short term liquidity needs
for the Company involve funding seasonal working capital requirements and
funding our limited 2003 capital expenditure program. Long term, liquidity needs
are to fund skiing-related capital improvements. Capital expenditures are funded
through the Companys line of credit with Bank of America. The size and
scope of the capital improvement program will generally be determined annually
depending upon the strategic importance and expected financial return of the
projects, future cash flow availability from Resort operations and future
borrowing availability. The Resort is well positioned for the next couple of
years and should not have to expend large amounts on mountain improvements.
Continued growth of skier visits, revenues and profitability will require
periodic capital investment in on-mountain improvements.


Specifically during 2003,
the Company is taking a conservative approach to capital expenditures. It plans
to complete the seven million gallon reservoir it began last fiscal year in
order to have snowmaking along the Chair 2 ski trails. Snowmaking helps,
providing temperatures are conducive, to mitigate the weather conditions that
impact the Resort during the ski months. A lower level of capital expenditures
are also planned during fiscal year 2003, including computer upgrades, equipment
rental upgrades and a software package to enhance activity bookings for our
guests.


Long-term debt at the end
of 2002 increased to $6,013,705 from $4,029,000 at the end of 2001. Long-term
debt levels at the end of 2002 and 2001 were 55.2% and 43.3%, respectively, of
stockholders equity.


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. The agreement provides for a $9,750,000 revolving, reducing
line of credit which matures on May 31, 2008. 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 $750,000
each June 1st beginning June 1, 1999. 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
facility is at or below Bank of America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 $2,871,405 of unused funds on the Bank
of America line of credit at May 31, 2002.


The Company entered into an
agreement with the landowner contiguous to the Companys eastern boundary
during the current fiscal year. Under this agreement, the Company obtained an
option to purchase approximately 183.5 acres during the next four years at a
specified price. This parcel may be divided into no more than three separate
parcels and may be acquired in as many as three separate closings. The Company
is required to make specified option payments during the time of this agreement.
The first three option payments will be credited proportionally to parcels as
they are purchased. The remaining option payments will not be applied to the
purchase price of any parcel. During fiscal year 2002, the Company made option
payments totaling $171,000 which is reflected in Other Assets in Note 5.


13
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Company will adopt FASB
142 at the beginning of the 2003 fiscal year. Under this FASB, goodwill will no
longer be permitted to be amortized. Instead, goodwill and other intangibles
will be subject to an annual test for impairment of value. The Company does not
expect this statement to have a material effect on its financial statements as
presented.


Statement of Financial
Accounting Standards No. 143 will be adopted by the Company in the next fiscal
year. Under this standard, asset retirement and the obligations associated with
the retirement of tangible long-lived assets will change. The Company does not
expect this statement to have a material effect on its financial statements as
presented.


The Company will adopt FASB
144 at the beginning of the 2003 fiscal year. This standard sets forth
guidelines for accounting and reporting for the impairment of long-lived assets
and for long-lived assets to be disposed of. The Company does not believe this
pronouncement will have a material effect on the financial statements as
presented.


Subsequent to year-end, the
Company sold a .75-acre tract of land to a Hines Resorts entity for the purposes
of developing a condominium building in the village core. This was first
reported in a previously filed 10Q dated April 5, 2002. Located on this tract of
land, was the Companys marketing department, Big Drift Coffee House and
Alpine Lodge, which contained Kiddie Korner and a day lodge with related locker
facilities. The Company has moved its marketing department to facilities located
near the property management offices. It is expected that Kiddie Korner will
operate out of temporary facilities slope side for at least one ski season,
until a permanent location is determined. Big Drift moved its building near
Chair 1, behind Alpinglow. A new location for the day lodge has not been
completely determined as of yet. The plan is to house some vending machines in
temporary buildings and to open the additional space in the Outpost for lockers.
Kitchen equipment located in the Alpine has either been put in storage, disposed
of, or relocated to other facilities. The Company expects to recognize the gain
on the sale of this parcel of land using the cost recovery method as with other
parcels of land it has sold during this past fiscal year. It is expected that
this condominium project will contain 49 condominium units of varying sizes. It
will also contain over 10,000 square feet of retail space. The Company expects
to purchase this retail space once the project is complete and lease the space
to a varying mix of tenants. The project broke ground in June, 2002 and is
expected to be completed during early fall of 2003. Land sales of this nature
will occur based on a detailed plan presented to management and the Board of
Directors and the prevailing economic climate. The proposed development is
analyzed for a number of important factors, one of the most important being
whether the project is in compliance with the Master Plan for the village core
and surrounding area as well as with the vision statement for the Resort.


Also subsequent to
year-end, the Companys subsidiary became a member of Morning Eagle LLC.
The subsidiary does not participate in the day-to-day operating activities of
this entity, nor does it guarantee any debt of the entity. The manager of the
LLC prepares an annual plan for approval of all members as to the type of
development that is envisioned for the tract of land owned by the LLC. The
Companys subsidiary receives a portion of the profit from this entity. The
profit is the residual, if any, of the sales of real estate product over the
costs of developing that product, including marketing. The Companys
subsidiary is accounting for this investment under the equity method of
accounting, as it will receive 22% of the residual profit generated.


14
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|On August 14, 2002, the
Company filed Form 8K to announce that the Companys Board of Directors
authorized management to seek financing and pursue design documents for a
conference center to be built in the village core of the Resort. The new
facility is currently being planned to measure 41,000 square feet, including
parking, approximately 27,000 square feet of useable meeting space, and is
tentatively scheduled to open the first half of calendar year 2004. Once
management secures financing, it will present to the Board a proposed
construction schedule, final construction documents and the financing
arrangements for their consideration. The location for this center, to be named
Crown of the Continent Conference Center, is where the Bierstube is currently
located. The Company has investigated moving the Bierstube building, however due
to structural constraints, it does not make economic sense to do so. The Company
expects the atmosphere of this bar/restaurant to appear again in another
location within the next couple of years. This restaurant has had at least two
previous locations at the Resort. The Company is looking at varies types of
financing currently and is matching potential financing with the expected cash
flows which will be generated from the operation of such a facility, both within
the facility and the economic impact to the Resort and the Community as a whole.
The Company also has a funding mechanism in place in which a portion of lot
sales are allocated to assist in the funding of the conference center. The
Company will continue to use this funding mechanism as well as others that are
currently under investigation.


15
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Index
      to Consolidated Financial Statements                                                                                    | Page 
|----------------------------------------------------------------------------------------------------------------------------------- | -----
|                                                                                                                                    |      
|                                                                                                                                    |      
|Independent
      Auditors Report                                                                                                  | 17   
|                                                                                                                                    |      
|Financial
      Statements:                                                                                                         |      
|                                                                                                                                    |      
|Consolidated
      Balance Sheets as of May 31, 2002 and 2001                                                                       | 18   
|                                                                                                                                    |      
|Consolidated
      Statements of Income and Retained Earnings
                for the Years
      Ended May 31, 2002, 2001 and 2000 | 19   
|                                                                                                                                    |      
|Consolidated
      Statements of Cash Flow
                for the Years
      Ended May 31, 2002, 2001 and 2000                    | 20-21
|                                                                                                                                    |      
|Notes
      to Consolidated Financial Statements                                                                                    | 22-32

|16
|--

|INDEPENDENT AUDITORS
REPORT


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


We have audited the
accompanying consolidated balance sheets of Winter Sports, Inc. (a Montana
Corporation) as of May 31, 2002 and 2001, 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, 2002. 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 auditing standards generally accepted in the United States of
America. 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,
2002 and 2001 and the results of its operations and its cash flows for each of
the three years in the period ended May 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Jordahl & Sliter PLLCKalispell,
MontanaJuly 5, 2002


17
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WINTER SPORTS, INC.CONSOLIDATED
BALANCE SHEETS
|----------------------------------------------

|                                                   | May
      31 |            
|-------------------------------------------------- | ------------ | -----------
|                                                   |              |            
|                                                   | 2002         |            
|                                                   |              |            
|ASSETS                                             |              |            
|                                                   |              |            
|Current
      Assets                               |              |            
|Cash
      and cash equivalents                    | $            | 740,330    
|Accounts
      receivables (net of reserve for     |              |            
|bad
      debts of $0 and $24,271, respectively)   |              | 451,299    
|Accounts
      receivables - related parties       |              | 120,137    
|Interest
      receivable                          |              | 4,761      
|Income
      tax refund receivable                 |              | 154,235    
|Current
      deferred tax asset                   |              | 30,832     
|Inventories                                        |              | 573,773    
|Prepaid
      expenses                             |              | 247,257    
|                                                   |              |            
|Total
      Current Assets                         |              | 2,322,624  
|                                                   |              |            
|                                                   |              |            
|Property
      and Equipment, at cost              |              | 28,930,197 
|Accumulated
      depreciation and amortization    |              | (16,253,486
|                                                   |              |            
|                                                   |              | 12,676,711 
|Construction
      in progress                     |              | 721,760    
|Land
      and development costs                   |              | 6,273,075  
|                                                   |              |            
|Net Property
      and Equipment                   |              | 19,671,546 
|                                                   |              |            
|                                                   |              |            
|Investment
      in LLCs                           |              | 182,322    
|                                                   |              |            
|                                                   |              |            
|Other
      Assets                                 |              | 682,773    
|                                                   |              |            
|                                                   |              |            
|TOTAL
      ASSETS                                 | $            | 22,859,265 
|                                                   |              |            
|                                                   |              |            
|LIABILITIES
      AND STOCKHOLDERS EQUITY         |              |            
|                                                   |              |            
|Current
      Liabilities                          |              |            
|Accounts
      payable                             | $            | 626,949    
|Accounts
      payable - related parties           |              | 8,460      
|Employee
      compensation and related expenses   |              | 304,555    
|Taxes
      other than payroll and income          |              | 96,976     
|Interest
      payable                             |              | 43,032     
|Short-term
      debt                              |              | 42,890     
|Deposits
      and other unearned income           |              | 2,399,040  
|Other
      current liabilities                    |              | 3,193      
|                                                   |              |            
|Total
      current liabilities                    |              | 3,525,095  
|Long-term
      debt                               |              | 6,013,705  
|Deferred
      income taxes                        |              | 2,422,153  
|                                                   |              |            
|Total
      Liabilities                            |              | 11,960,953 
|                                                   |              |            
|                                                   |              |            
|Stockholders
      Equity                         |              |            
|Common
      stock (5,000,000 shares authorized;   |              |            
|988,668
      shares outstanding in 2002 and 2001) |              | 3,887,676  
|Retained
      earnings                            |              | 7,010,636  
|                                                   |              |            
|Total
      stockholders equity                   |              | 10,898,312 
|                                                   |              |            
|                                                   |              |            
|TOTAL
      LIABILITIES AND STOCKHOLDERS EQUITY   | $            | 22,859,265 
|                                                   |              |            

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


18
|-------------------------------------------------------------------------------

|WINTER SPORTS, INC.CONSOLIDATED
STATEMENTS OF INCOME AND RETAINED EARNINGS
|--------------------------------------------------------------------------

|                                                                   | Year
      Ending May 31,
|------------------------------------------------------------------ | -------------------------
|                                                                   |                          
|                                                                   |                          
|Revenue                                                            |                          
|Lifts                                                              | $                        
|Food,
      beverage and retail                                    |                          
|Equipment
      rental and repair                                  |                          
|Lodging                                                            |                          
|Lease,
      management and other fees                             |                          
|Lease,
      management and other fees
          - related parties |                          
|Real
      estate sales                                            |                          
|                                                                   |                          
|Total
      Revenue                                                |                          
|                                                                   |                          
|                                                                   |                          
|Operating
      Costs & Expenses                                   |                          
|Direct
      expenses - lifts                                      |                          
|Depreciation
      expense - lifts                                 |                          
|Cost
      of food, beverage and retail                            |                          
|Cost
      of real estate sales                                    |                          
|Payroll
      and related expenses                                 |                          
|Direct
      expenses                                              |                          
|Direct
      expenses - related parties                            |                          
|Marketing                                                          |                          
|Marketing
      - related parties                                  |                          
|Depreciation
      and amortization                                |                          
|General
      and administrative                                   |                          
|General
      and administrative -
          related parties       |                          
|                                                                   |                          
|Total
      Operating Costs & Expenses                             |                          
|                                                                   |                          
|                                                                   |                          
|Operating
      Income                                             |                          
|                                                                   |                          
|Other
      Income (Expense)                                       |                          
|Interest
      income                                              |                          
|Interest
      expense                                             |                          
|Sale
      of land                                                 |                          
|Unrecognized
      gross profit on land sale                       |                          
|Cost
      of land sale                                            |                          
|Gain
      on land sale                                            |                          
|Equity
      in Earnings-LLCs                                      |                          
|Other
      income (expense)                                       |                          
|                                                                   |                          
|                                                                   |                          
|Total
      Other Income (Expense)                                 |                          
|                                                                   |                          
|                                                                   |                          
|Income
      (Loss) before income taxes                            |                          
|Provision
      for (Recovery of)
          income taxes           |                          
|                                                                   |                          
|Net Income
      (Loss)                                            |                          
|                                                                   |                          
|Retained
      earnings - beginning of year                        |                          
|                                                                   |                          
|                                                                   |                          
|Retained
      earnings - end of year                              | $                        
|                                                                   |                          
|                                                                   |                          
|Earnings
      (Loss) per common share                             | $                        
|                                                                   |                          
|                                                                   |                          
|Weighted
      average shares outstanding                          |                          

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


19
|------------------------------------------------------------------------------

|WINTER SPORTS, INC.CONSOLIDATED
STATEMENTS OF CASH FLOWS
|--------------------------------------------------------

|                                                                                                    | Year
      Ending May 31,
|--------------------------------------------------------------------------------------------------- | -------------------------
|                                                                                                    |                          
|                                                                                                    |                          
|Cash
      flows from operating activities:                                                         |                          
|Net
      income (loss)                                                                             | $                        
|                                                                                                    |                          
|                                                                                                    |                          
|Adjustments
      to reconcile net income
        to cash provided by
        operating activities: |                          
|Depreciation
      and amortization                                                                 |                          
|Increase
      (decrease) in deferred
            income taxes                                      |                          
|(Gain)
      loss on disposition of assets                                                          |                          
|(Gain)
      on sale of land                                                                        |                          
|Bad
      debt expense (net of recovery)                                                            |                          
|Equity
      in Earnings - LLCs                                                                     |                          
|Write-off
      of intangible asset                                                                 |                          
|Changes
      in operating assets
           and liabilities:                                       |                          
|Receivables                                                                                         |                          
|Refundable
      income taxes                                                                       |                          
|Inventories                                                                                         |                          
|Prepaid
      expenses                                                                              |                          
|Construction
      in progress                                                                      |                          
|Land
      and development costs                                                                    |                          
|Other
      assets                                                                                  |                          
|Accounts
      payable                                                                              |                          
|Employee
      compensation and                                                                     |                          
|related
      expenses                                                                              |                          
|Interest
      payable                                                                              |                          
|Taxes
      other than payroll and                                                                  |                          
|income
      taxes                                                                                  |                          
|Income
      taxes payable                                                                          |                          
|Deposits
      and other                                                                            |                          
|unearned
      revenue                                                                              |                          
|Other
      liabilities                                                                             |                          
|                                                                                                    |                          
|Total
      adjustments                                                                             |                          
|                                                                                                    |                          
|Net cash
      provided by                                                                          |                          
|operating
      activities                                                                          |                          
|                                                                                                    |                          
|                                                                                                    |                          
|Cash
      flows from investing activities:                                                         |                          
|Proceeds
      from sale of assets and land                                                         |                          
|Proceeds
      from redemption of
          certificate of deposit                                  |                          
|Option
      payments                                                                               |                          
|Property
      and equipment acquisitions                                                           |                          
|                                                                                                    |                          
|Net cash
      provided by (used in)
        investing activities                                   |                          
|                                                                                                    |                          
|Cash
      flows from financing activities:                                                         |                          
|Proceeds
      from issuance of
            long-term debt                                          |                          
|Payments
      of long-term debt                                                                    |                          
|Stock
      Repurchase Plan                                                                         |                          
|                                                                                                    |                          
|Net cash
      provided by (used in)                                                                |                          
|financing
      activities                                                                          |                          
|                                                                                                    |                          
|Net increase
      (decrease) in cash                                                               |                          
|and
      cash equivalents                                                                          |                          
|Cash
      and cash equivalents - beginning                                                         |                          
|of
      year                                                                                       |                          
|                                                                                                    |                          
|Cash
      and cash equivalents - end                                                               |                          
|of
      year                                                                                       | $                        
|                                                                                                    |                          

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


20
|------------------------------------------------------------------------------

|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. The Company dissolved Big Mountain Resort
Reservations during fiscal year 2001, due to no activity. 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. 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. Capitalized interest during fiscal year 2002 was $15,231.
In 2001 and 2000, $0 and $4,516 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.


The Company, under a
development agreement with another entity, will from time to time sell parcels
of land. The Company is recognizing any gain on the sale of these parcels under
the cost recovery method. Under this method, the gain is unrecognized until such
time as the basis of the land and the associated costs of the sale of these
parcels have been recovered.


Revenue from investments in
limited liability corporations are being accounted for under the Equity method
of accounting. Under this method, earnings are recognized at the time they are
earned through the LLC. See also Note 4.


21
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Advertising costs are
expensed as incurred. Advertising expenses were $897,528, $910,595 and $918,372
in 2002, 2001 and 2000, respectively.


The Company uses the
allowance method to account for uncollectible accounts receivable. The Company
considers accounts receivable to be fully collectible at year-end, accordingly,
no allowance for doubtful accounts is required.


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 loan. The
Covenant Not to Compete is being amortized on a straight-line basis over a
sixty-month period. Goodwill is being amortized on a straight-line basis over
fifteen years.


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 has previously amortized the costs of the EIS over its
useful life. During fiscal year 2002, it was determined that there was no value
left in the EIS and so the Company wrote off the remaining balance.


The Company estimates that
the fair value of all financial instruments at May 31, 2002 and 2001, do not
differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying balance sheets.


NOTE 2. Business Segment Information


In 2002, 2001 and 2000, 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, and a variety of
summer recreation activities for summer guests. Operations in the sale of real
estate involve sales to interested parties of single-family lots, town homes,
town home lots and condominiums.


22
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Financial information by
industry segment for 2002, 2001 and 2000 is summarized as follows:
|-------------------------------------------------------------------------------------------

|                                    | Ski
      Area |            | Real
      Estate |   | Consolidated |  
|----------------------------------- | -------------- | ---------- | ----------------- | - | ------------ | -
|                                    |                |            |                   |   |              |  
|2002                                |                |            |                   |   |              |  
|Revenue                             | $              | 10,893,082 |                   | $ | 2,149,100    |  
|Operating
      profit (loss)       | $              | (703,676   | )                 | $ | 979,213      |  
|Depreciation
      and amortization | $              | 1,617,414  |                   | $ | 21,853       |  
|Interest
      income               | $              | 60,963     |                   | $ | 142,354      |  
|Interest
      expense              | $              | (489,287   | )                 | $ | 0            |  
|Equity
      in Earnings -LLCs      | $              | 0          |                   | $ | 182,302      |  
|Income
      tax expense            | $              | 695,840    |                   | $ | 341,761      |  
|Identifiable
      assets           | $              | 19,077,997 |                   | $ | 3,781,268    |  
|Capital
      expenditures          | $              | 1,108,696  |                   | $ | 0            |  
|                                    |                |            |                  
|2001                                |                |            |                  
|Revenue                             | $              | 9,473,285  |                   | $ | 3,428,566    |  
|Operating
      profit (loss)       | $              | (1,210,402 | )                 | $ | 1,462,770    |  
|Depreciation
      and amortization | $              | 1,492,742  |                   | $ | 22,051       |  
|Interest
      income               | $              | 0          |                   | $ | 0            |  
|Interest
      expense              | $              | (287,388   | )                 | $ | 0            |  
|Equity
      in Earnings-LLCs       | $              | 0          |                   | $ | 0            |  
|Income
      tax expense (benefit)  | $              | (648,471   | )                 | $ | 642,771      |  
|Identifiable
      assets           | $              | 14,761,052 |                   | $ | 2,927,403    |  
|Capital
      expenditures          | $              | 3,534,396  |                   | $ | 0            |  
|                                    |                |            |                  
|2000                                |                |            |                  
|Revenue                             | $              | 10,146,049 |                   | $ | 5,027,418    |  
|Operating
      profit              | $              | 169,478    |                   | $ | 2,707,621    |  
|Depreciation
      and amortization | $              | 1,376,106  |                   | $ | 22,051       |  
|Interest
      income               | $              | 0          |                   | $ | 4,532        |  
|Interest
      expense              | $              | (362,393   | )                 | $ | (26,373      | )
|Equity
      in Earnings-LLCs       | $              | 0          |                   | $ | 0            |  
|Income
      tax expense (benefit)  | $              | (119,084   | )                 | $ | 1,007,087    |  
|Identifiable
      assets           | $              | 12,293,819 |                   | $ | 3,785,579    |  
|Capital
      expenditures          | $              | 649,853    |                   | $ | 0            |  

|NOTE 3. Property and Equipment
|------------------------------

|                                   | Asset
      Life Years |  |  | 2002 |            |  | 2001
|---------------------------------- | ---------------------- |  |  | ---- | ---------- |  | ----
|                                   |                        |  |  |      |            |  |     
|Leasehold
      improvements       | 30                     |  |  | $    | 891,783    |  | $   
|Buildings
      and grounds        | 10-30                  |  |  |      | 10,328,319 |  |     
|Lifts                              | 10-15                  |  |  |      | 10,140,438 |  |     
|Machinery
      and equipment      | 3-25                   |  |  |      | 6,135,703  |  |     
|Furniture
      and fixtures       | 3-10                   |  |  |      | 752,187    |  |     
|Water
      system                 | 10-25                  |  |  |      | 681,767    |  |     
|                                   |                        |  |  |      |            | 
|Total
      property and equipment |                        |  |  | $    | 28,930,197 |  | $   
|                                   |                        |  |  |      |            | 

|23
|--

|NOTE 4. Investment in LLCs


The Companys
subsidiary, Big Mountain Development Corporation has become a member of two
limited liability companies, Northern Lights LLC and Moose Run II LLC. In each
of these LLCs, the subsidiary does not participate in the day-to-day operating
activities of these entities, nor does it guarantee any debt. The manager of
each LLC prepares an annual plan for approval of all members as to the type of
development that is envisioned for the tract of land owned by the LLC. The
Companys subsidiary receives a portion of the profit from each of these
entities. The profit is residual, if any, of the sales of real estate product
over the costs of developing that product, including marketing. The
Companys subsidiary is accounting for this investment under the equity
method of accounting, as it will receive 60% of the residual profit generated in
each of these LLCs. Condensed financial information of the LLCs are as follows:


COMBINED BALANCE SHEET
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|COMBINED
      ASSETS                    |   |          
|---------------------------------------- | - | ---------
|Land
      held for development and sale | $ | 669,217  
|Cash                                     |   | 399,912  
|Other
      Assets                       |   | 50,378   
|                                         |  
|                                         | $ | 1,119,507
|                                         |  
|                                         |   |          
|COMBINED
      LIABILITIES AND EQUITY    |   |          
|Notes
      and other payables           | $ | 813,182  
|Equity                                   |   | 306,325  
|                                         |  
|                                         | $ | 1,119,507
|                                         |  

|COMBINED STATEMENT OF
INCOME
|----------------------------

|Net
      Income from sales | $ | 239,479
|--------------------------- | - | -------
|                            |  

|NOTE 5. Other Assets


Other assets at May 31,
2002 and 2001 are summarized as follows:
|---------------------------------------------------------------------------------------

|                                                          |   | 2002    |  |   | 2001   
|--------------------------------------------------------- | - | ------- |  | - | -------
|                                                          |   |         |  |   |        
|                                                          |   |         |  |   |        
|Loan
      costs, net of amortization                     | $ | 18,089  |  | $ | 21,040 
|Planning
      and development - long-term                |   | 52,758  |  |   | 52,758 
|Noncurrent
      deferred tax asset                       |   | 240,641 |  |   | 60,596 
|Environmental
      Impact Statement, net of amortization |   | 0       |  |   | 57,306 
|Option
      Payments                                     |   | 171,000 |  |   | 0      
|Goodwill,
      net of amortization                       |   | 158,469 |  |   | 169,851
|Covenant
      Not to Compete, net of amortization        |   | 18,988  |  |   | 23,828 
|Other
      long-term assets                              |   | 22,828  |  |   | 22,828 
|                                                          |   |         | 
|Total
      other assets                                  | $ | 682,773 |  | $ | 408,207
|                                                          |   |         | 

|24
|--

|NOTE 6. Notes Payable


Long-term debt at May 31,
2002 and 2001 is summarized as follows:
|-----------------------------------------------------------------------------------------

|                                                           |   | 2002      |   |   | 2001     
|---------------------------------------------------------- | - | --------- | - | - | ---------
|                                                           |   |           |   |   |          
|Bank
      of America National Trust and Savings           | $ | 4,628,595 |   | $ | 4,029,000
|Association,
      revolving, reducing term loan with      |   |           |   |   |          
|initial
      $9,750,000 availability decreasing by        |   |           |   |   |          
|$750,000
      each year beginning June 1, 1999.           |   |           |   |   |          
|Mandatory
      principal reductions are required on       |   |           |   |   |          
|outstanding
      balances above amounts available.        |   |           |   |   |          
|Interest
      at or below banks reference rate.          |   |           |   |   |          
|Interest
      rate at May 31, 2002 and 2001 was 3.7713%   |   |           |   |   |          
|and 6.1727%,
      respectively. Secured by all ski area   |   |           |   |   |          
|operation
      real and personal property and             |   |           |   |   |          
|assignment
      in trust of all U.S. Forest Service       |   |           |   |   |          
|special
      use permits. Matures May 31, 2008.           |   |           |   |   |          
|                                                           |   |           |   |   |          
|Whitefish
      Credit Union, a related party,             |   | 1,428,000 |   |   | 0        
|Term
      loan. Interest reviewed annually and            |   |           |   |   |          
|Set at
      Wall Street Prime +1%, with a floor of        |   |           |   |   |          
|5% and
      a cap of 8.5%. Interest at May 31, 2002       |   |           |   |   |          
|is 5.75%.
      Secured by land purchase. Maturity         |   |           |   |   |          
|date
      of January 1, 2007. Five annual payments of     |   |           |   |   |          
|$125,000 (principal
      and interest) due each January 1 |   |           |   |   |          
|beginning
      January 1, 2003.                           |   |           |   |   |          
|                                                           |   |           |   |   |          
|Less
      current maturities                              |   | (42,890   | ) |   | 0        
|                                                          
|Total
      long-term debt                                 | $ | 6,013,705 |   | $ | 4,029,000
|                                                          

|Mandatory reductions of
long-term debt are as follows:
|------------------------------------------------------

|For
      the Year Ending May 31, |                       | Amount
|--------------------------------- | --------------------- | ------
|                                 
|                                  | 2003                  |       
|                                  | 2004                  |       
|                                  | 2005                  |       
|                                  | 2006                  |       
|                                  | 2007                  |       
|                                  | 2008
      and beyond |       
|                                  |                       |       
|                                  |                       |       
|                                  |                       |       

|The Bank of America 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. For the years ended
May 31, 2001 and 2000, the Company was in compliance of the debt coverage ratio
covenant and the funded debt covenant required by the loan agreement. During
fiscal year 2002, the Company exceeded its capital expenditures provision, but
was given a written waiver by Bank of America.


At May 31, 2002 and 2001,
$2,871,405 and $4,221,000 respectively, were unused and available for borrowing
on the Bank of America line of credit.


25
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 7. Capital Stock and Additional
Paid-In Capital


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

|                              | Common
      Stock |        | Additional
      Paid-in 
      Capital |          
|----------------------------- | ------------------ | ------ | --------------------------------------- | ---------
|                             
|Number
      
      of Shares |                    | Amount
|                              |                    |        |                                         |          
|                             
|Balance
      at 5/31/00      | 1,008,368          |        | $                                       | 4,099,174
|Stock
      Repurchase        | (19,700            | )      |                                         | (211,498 
|                             
|Balance
      at 5/31/01      | 988,668            |        |                                         | 3,887,676
|                             
|Balance
      at 5/31/02      | 988,668            |        | $                                       | 3,887,676
|                             

|NOTE 8. Income Taxes


Income taxes (credits)
consist of the following:
|-----------------------------------------------------------------------

|                                               |   | 2002      |   |   | 2001    |   |   | 2000    |  
|---------------------------------------------- | - | --------- | - | - | ------- | - | - | ------- | -
|                                               |   |           |   |   |         |   |   |         |  
|Current
        Federal                        | $ | 149,330   |   | $ | 54,040  |   | $ | 633,806 |  
|Fuel
      tax credit                          |   | (676      | ) |   | (1,384  | ) |   | (498    | )
|                                               |   |           |   |   |         |  
|                                               |   | 148,654   |   |   | 52,656  |   |   | 633,308 |  
|State                                          |   | 37,113    |   |   | 10,660  |   |   | 147,408 |  
|                                               |   |           |   |   |         |  
|                                               |   | 185,767   |   |   | 63,316  |   |   | 780,716 |  
|                                               |   |           |   |   |         |   |   |         |  
|Deferred
        Federal                       |   | 708,797   |   |   | (58,275 | ) |   | 92,462  |  
|State                                          |   | 143,039   |   |   | (10,741 | ) |   | 14,825  |  
|                                               |   |           |   |   |         |  
|Provision
      for (Recovery of) income taxes | $ | 1,037,603 |   | $ | (5,700  | ) | $ | 888,003 |  
|                                               |   |           |   |   |         |  

|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:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            |   | 2002      |   |   | 2001      |   |   | 2000      |  
|------------------------------------------- | - | --------- | - | - | --------- | - | - | --------- | -
|                                            |   |           |   |   |           |   |   |           |  
|Depreciation                                | $ | 3,595,057 |   | $ | 3,619,900 |   | $ | 3,763,593 |  
|Uniform
      capitalization for income tax |   | (42,215   | ) |   | (51,401   | ) |   | (59,206   | )
|Bad debt
      reserve                      |   | 0         |   |   | (39,861   | ) |   | (39,861   | )
|Vacation
      allowance                    |   | (64,944   | ) |   | (75,257   | ) |   | (52,042   | )
|Land
      and LLC Basis                    |   | 2,084,585 |   |   | 0         |   |   | 0         |  

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

|                                        |   | 2002      |  |   | 2001     
|--------------------------------------- | - | --------- |  | - | ---------
|                                        |   |           |  |   |          
|                                        |   |           |  |   |          
|Noncurrent
      deferred tax liability | $ | 2,422,153 |  | $ | 1,392,033
|                                        |   |           | 
|Total
      deferred tax liability      | $ | 2,422,153 |  | $ | 1,392,033
|                                        |   |           | 
|                                        |   |           |  |   |          
|Current
      deferred tax assets       | $ | 30,832    |  | $ | 32,593   
|Noncurrent
      deferred tax asset     |   | 240,641   |  |   | 60,596   
|                                        |   |           | 
|Net deferred
      tax assets           | $ | 271,473   |  | $ | 93,189   
|                                        |   |           | 

|26
|--

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

|                                            |   | 2002      |    |   | 2001    |    |   | 2000      |   
|------------------------------------------- | - | --------- | -- | - | ------- | -- | - | --------- | --
|                                            |   |           |    |   |         |    |   |           |   
|                                            |   |           |    |   |         |    |   |           |   
|Income
      (loss) before taxes            | $ | 2,636,120 |    | $ | (15,028 | )  | $ | 2,385,985 |   
|Statutory
      federal rate                |   | 34        | %  |   | (34     | %) |   | 34        | % 
|Increased
      (decreases) resulting from: |   |           |    |   |         |    |   |           |   
|State
      tax at statutory rate           |   | 7         | %  |   | (7      | %) |   | 7         | % 
|Other
      (net)                           |   | (2        | %) |   | 3       | %  |   | (4        | %)
|                                            |   |           |    |   |         |   
|Effective
      tax rate                    |   | 39        | %  |   | (38     | %) |   | 37        | % 
|                                            |   |           |    |   |         |   

|At May 31, 2002, the Company
utilized an alternative minimum tax credit carryforward of $17,202 to reduce current
income taxes. The credit had been recognized in 2001 as a noncurrent deferred tax asset.


At May 31, 2001 the Company had an
alternative minimum tax credit carryforward of $17,202 which was carried forward to 2002.


At May 31, 2000 the Company utilized
a federal net operating loss carryforward of $328,045 and a state net operating loss
carryforward of $265,659 to offset current taxable income. The Company also utilized an
alternative minimum tax credit carryforward of $29,342 to reduce current income taxes.
The credit had been recognized in 1999 as a noncurrent deferred tax asset.


NOTE 9. Supplemental Cash Flow
Disclosures


Supplemental cash flow information
is as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cash
      paid during the year for: |   | 2002    |  |   | 2001    |  |   | 2000   
|------------------------------------ | - | ------- |  | - | ------- |  | - | -------
|                                     |   |         |  |   |         |  |   |        
|                                     |   |         |  |   |         |  |   |        
|Interest
      (net of capitalized)  | $ | 446,255 |  | $ | 332,451 |  | $ | 348,686
|Income
      taxes (net of refunds)  | $ | 0       |  | $ | 245,000 |  | $ | 971,050

|Schedule
      of non-cash investing and financing |   |            |   |   |           |  
|-------------------------------------------------- | - | ---------- | - | - | --------- | -
|Transactions                                       |   | 2002       |   |   | 2001      |  
|                                                   |   |            |   |   |           |  
|Acquisition
      of property, equipment and land  | $ | 4,594,914  |   | $ | 3,735,196 |  
|Less
      notes payable                           |   | (4,453,135 | ) |   | (200,800  | )
|                                                   |   |            |   |  
|Cash
      paid                                    | $ | 141,779    |   | $ | 3,534,396 |  
|                                                   |   |            |   |  

|NOTE 10. 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, 2038. Charges to income for fees paid, based on the
Graduated Rate Fee System set by the U.S. Forest Service were $95,319, $91,596 and
$117,654 for 2002, 2001 and 2000, respectively.


NOTE 11. 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% for those employees
who contribute between 2% and 4%. The Company contributes a matching 3% for any employee
who contributes 4% or more. The plan is currently 100% funded. The Companys
contributions to the Plan and charges to income for 2002, 2001 and 2000 amounted to
$61,955, $46,639 and $35,285 respectively.


27
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 12. 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.


Related party transactions are
summarized as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              |   | 2002      |   |   | 2001    |  |   | 2000    |  
|--------------------------------------------- | - | --------- | - | - | ------- |  | - | ------- | -
|                                              |   |           |   |   |         |  |   |         |  
|                                              |   |           |   |   |         |  |   |         |  
|Revenue
      received                        |   |           |   |   |         |  |   |         |  
|Rent
      and lease revenue                  | $ | 10,000    |   | $ | 13,932  |  | $ | 30,872  |  
|Management
      fee                          | $ | 0         |   | $ | 0       |  | $ | 12,500  |  
|Other
      revenue                           | $ | 243,985   |   | $ | 217,885 |  | $ | 190,723 |  
|Expenses
      incurred                       |   |           |   |   |         |  |   |         |  
|Dues
      and memberships                    | $ | 23,517    |   | $ | 40,337  |  | $ | 57,624  |  
|Legal
      fees                              | $ | 0         |   | $ | 0       |  | $ | 17,407  |  
|Direct
      Expenses                         | $ | 7,231     |   | $ | 0       |  | $ | 0       |  
|Marketing                                     | $ | (1,014    | ) | $ | 1,600   |  | $ | (20,175 | )
|General
      and administrative              | $ | (6,197    | ) | $ | 84,884  |  | $ | 534     |  
|Interest
      Expense                        | $ | 35,094    |   | $ | 0       |  | $ | 0       |  
|                                              |   |           |   |   |         |  |   |         |  
|Amounts
      due to and from related parties |   |           |   |   |         |  |   |         |  
|Accounts
      receivable                     | $ | 120,137   |   | $ | 27,128  |  | $ | 17,258  |  
|Accounts
      payable                        | $ | 8,460     |   | $ | 6,233   |  | $ | 21,784  |  
|Interest
      payable                        | $ | 35,094    |   | $ | 0       |  | $ | 0       |  
|Note
      payable                            | $ | 1,428,000 |   | $ | 0       |  | $ | 0       |  

|NOTE 13. Stock Bonus and Stock
Options


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.


28
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
      Per Share |  | Number
      Of Shares |  
|------------------------------- | ---------------------------- |  | ---------------------- | -
|                                |                              |  |                        |  
|Outstanding,
      May 31, 2000 | 15.00
      - 19.50          |  | 12,000                 |  
|Expired                         | 17.00                        |  | (6,000                 | )
|                                |                              |  |                        |  
|Outstanding,
      May 31, 2001 | 15.00
      - 19.50          |  | 6,000                  |  
|Expired                         | 17.00                        |  | (6,000                 | )
|                                |                              |  |                        |  
|Outstanding,
      May 31, 2002 | $15.00 - 19.50               |  | 0                      |  
|                                |                              |  |                        |  

|NOTE 14. Commitments and
Contingencies


The Company entered into an
agreement with the landowner contiguous to the Companys eastern boundary during the
current fiscal year. Under this agreement, the Company obtained an option to purchase
approximately 183.5 acres during the next four years at a specified price. This parcel
may be divided into no more than three separate parcels and may be acquired in as many as
three separate closings. The Company is required to make specified option payments during
the time of this agreement. The first three option payments will be credited
proportionally to parcels as they are purchased. The remaining option payments will not
be applied to the purchase price of any parcel. During fiscal year 2002, the Company made
option payments totaling $171,000 which is reflected in Other Assets in Note 5.


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.


The Company is a defendant in two
lawsuits filed on behalf of individuals who are seeking damages of unspecified amounts
for alleged personal injuries resulting from an accident occurring on the Companys
property. The Company intends to vigorously defend the claim. Outside counsel for the
Company has advised that at this stage in the proceedings they cannot offer an opinion as
to the probable outcome or estimate the amount or range of a potential loss.


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 who are located in the northwest United
States.


NOTE 15. Other Income and Expense


The Company recognized a portion of
the gain on the sale of land during this fiscal year in the amount of $2,368,737. The
Company sold approximately 16 acres during the first quarter of this fiscal year. The
Company is recognizing the gain on the sale of the land under the cost recovery method.
Under this method, the gain is unrecognized until such time as the basis of the land and
the associated costs of the sale of land have been recovered. During the year, these
costs were recovered through proceeds received and the gain will continue to be
recognized as proceeds continue to be received. The Company expects this to continue
through the second quarter of the current fiscal year.


29
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Included in Other income
for fiscal year 2002, are income received from an adjacent landowner under the
terms of a legal agreement, in which the landowner would be responsible for the
costs related to construction of a road on the Companys property where the
landowner would have egress. It was previously unclear when and if this would be
collected as well as what the actual dollar amount that the landowner would be
liable for. During 2002, the Company collected $243,505. This type of revenue is
not expected in the future.


Also included in Other
income (expenses) during 2002, are amounts which were incurred during the
planning of installing another Chair lift on the mountain. The Board of
Directors and management incurred costs of $105,670 during this planning and
subsequently decided not to install the lift. This decision was made as the
current lift capacity is not close to reaching its upper limit and it was
decided the Company could benefit from a different use of the capital it would
have taken to install this lift. The Company also expensed the EIS of $57,306 as
it was determined that the useful life of the Statement had expired.


During 2002, the Company
thinned a minor portion of its slopeside lands and earned $4,021 from the sale
of the timber. During 2001, no income was earned from the sale of timber. In
2000, the Company began selectively thinning its lower elevation lands in order
to reduce the fuel available should the lands be subject to a wildfire. The
revenue earned from the sale of the harvested timber amounted to $124,908 in
2000.


The Company periodically
reviews its master plan for long-term resort development. During 2000, the
Company charged against income $193,043 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:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               |   | 2002   |  |   | 2001   |  |   | 2000     |  
|---------------------------------------------- | - | ------ |  | - | ------ |  | - | -------- | -
|                                               |   |        |  |   |        |  |   |          |  
|Gain
      (loss) on sale/retirement of assets | $ | 2,212  |  | $ | 18,860 |  | $ | (50,636  | )
|Other                                          |   | 93,302 |  |   | 1,132  |  |   | 56,246   | )
|                                               |   |        |  |   |        | 
|Total
      other income (expense)             | $ | 95,514 |  | $ | 19,992 |  | $ | (106,882 | )
|                                               |   |        |  |   |        | 

|Note 16. Subsequent Events


Subsequent to year-end, the Company
sold a .75-acre tract of land to a Hines Resorts entity for the purposes of developing a
condominium building in the village core. This was first reported in a previously filed
10Q dated April 5, 2002. Located on this tract of land, was the Companys marketing
department, Big Drift Coffee House and Alpine Lodge, which contained Kiddie Korner and a
day lodge with related locker facilities. The Company has moved its marketing department
to facilities located near the property management offices. It is expected that Kiddie
Korner will operate out of temporary facilities slope side for at least one ski season,
until a permanent location is determined. Big Drift moved its building near Chair 1,
behind Alpinglow. A new location for the day lodge has not been completely determined as
of yet. The plan is to house some vending machines in temporary buildings and to open the
additional space in the Outpost for lockers. Kitchen equipment located in the Alpine has
either been put in storage, disposed of, or relocated to other facilities. The Company
expects to recognize the gain on the sale of this parcel of land using the cost recovery
method as with other parcels of land it has sold during this past fiscal year. It is
expected that this condominium project will contain 49 condominium units of varying
sizes. It will also contain over 10,000 square feet of retail space. The Company expects
to purchase this retail space once the project is complete and lease the space to a
varying mix of tenants. The project broke ground in June, 2002 and is expected to be
completed during early fall of 2003. Land sales of this nature will occur based a
detailed plan presented to management and the Board of Directors and the prevailing
economic climate. The proposed development is analyzed for a number of important factors,
one of the most important being whether the project is in compliance with the Master Plan
for the village core and surrounding area as well as with the vision statement for the
Resort.


30
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Also subsequent to
year-end, the Companys subsidiary became a member of Morning Eagle LLC.
The subsidiary does not participate in the day-to-day operating activities of
this entity, nor does it guarantee any debt of the entity. The manager of the
LLC prepares an annual plan for approval of all members as to the type of
development that is envisioned for the tract of land owned by the LLC. The
Companys subsidiary receives a portion of the profit from this entity. The
profit is the residual, if any, of the sales of real estate product over the
costs of developing that product, including marketing. The Companys
subsidiary is accounting for this investment under the equity method of
accounting, as it will receive 22% of the residual profit generated.


The Company announced that
the Companys Board of Directors authorized management to seek financing
and pursue design documents for a conference center to be built in the village
core of the Resort. The new facility is currently being planned to measure
41,000 square feet, including parking, approximately 27,000 square feet of
useable meeting space, and is tentatively scheduled to open the first part of
calendar year 2004. Once management secures financing, it will present to the
Board a proposed construction schedule, final construction documents and the
financing arrangements for their consideration. The location for this center, to
be named Crown of the Continent Conference Center, is where the Bierstube is
currently located. The Company has investigated moving the Bierstube building,
however due to structural constraints, it does not make economic sense to do so.
The Company expects the atmosphere of this bar/restaurant to appear again in
another location within the next couple of years. This restaurant has had at
least two previous locations at the Resort. The Company is looking at varies
types of financing currently and is matching potential financing with the
expected cash flows which will be generated from the operation of such a
facility, both within the facility and the economic impact to the Resort and the
Community as a whole. The Company also has a funding mechanism in place in which
a portion of lot sales are allocated to assist in the funding of the conference
center. The Company will continue to use this funding mechanism as well as
others that are currently under investigation.


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.


31
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Part III


Item 9. Directors and
Executive Officers of the Registrant


Incorporated by reference from the
Companys definitive proxy statement dated September 20, 2002 to be filed with the
Securities and Exchange Commission for the annual meeting of shareholders to be held on
October 15, 2002.


Item 10. Executive
Compensation


Incorporated by reference
from the Companys definitive proxy statement dated September 20, 2002 to
be filed with the Securities and Exchange Commission for the annual meeting of
shareholders to be held on October 15, 2002.


Item 11. Security
Ownership of Certain Beneficial Owners and Management


Incorporated by reference
from the Companys definitive proxy statement dated September 20, 2002 to
be filed with the Securities and Exchange Commission for the annual meeting of
shareholders to be held on October 15, 2002.


Item 12. Certain
Relationships and Related Transactions


Incorporated by reference
from the Companys definitive proxy statement dated September 20, 2002 to
be filed with the Securities and Exchange Commission for the annual meeting of
shareholders to be held on October 15, 2002.
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, 2002 and 2001                                                                    
|                                                        |                                                                                                                                  
|                                                        | Consolidated
      Statements of Income and Retained Earnings
              for the Years Ended May
      31, 2002, 2001 and 2000
|                                                        |                                                                                                                                  
|                                                        | Consolidated
      Statements of Cash Flows for
              the Years Ended May 31,
      2002, 2001 and 2000                  
|                                                        |                                                                                                                                  
|                                                        | 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 | 36  

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

| | No
Form 8-K was filed by the registrant during the last quarter of the period covered by
this report.
| | -----------------------------------------------------------------------------------------------------

| | One
report on Form 8-K was filed by the registrant subsequent to the end of the fiscal year.
On August 13, 2002, the Company filed Form 8-K to announce the Board of Directors
decision to have management proceed with securing financing, design and construction
documents to begin construction of a conference center to be located in Glacier Village
at the base of Big Mountain Resort. The conference center to be named Crown of the
Continent Conference Center is scheduled to break ground later this calendar year pending
Board approval of financing.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32
|--

|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 29, 2002
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 29, 2002
|----------------------- |  | --------------------------------------------- |  | ---------------
|              |  |                                               |  |                
|Charles R. Abell        |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Brian T. Grattan    |  | Director                                      |  | August 29, 2002
|              |  |                                               |  |                
|Brian T. Grattan        |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Dennis L. Green     |  | Director and
      Chairman of the Board      |  | August 29, 2002
|              |  |                                               |  |                
|Dennis L. Green         |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Charles P. Grenier  |  | Director                                      |  | August 29, 2002
|              |  |                                               |  |                
|Charles P. Grenier      |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Jerry J. James      |  | Director                                      |  | August 29, 2002
|              |  |                                               |  |                
|Jerry J. James          |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Michael T. Jenson   |  | Director                                      |  | August 29, 2002
|              |  |                                               |  |                
|Michael T. Jenson       |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Darrel R. Martin    |  | Director and
      Vice-Chairman of the Board |  | August 29, 2002
|              |  |                                               |  |                
|Darrel R. (Bill) Martin |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Michael J. Muldown  |  | Director                                      |  | August 29, 2002
|              |  |                                               |  |                
|Michael J. Muldown      |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Jerome T. Broussard |  | Director                                      |  | August 29, 2002
|              |  |                                               |  |                
|Jerome Broussard        |  |                                               |  |                
|                        |  |                                               |  |                
|/s/ Jami M Phillips     |  | Principal Financial
      Officer             |  | August 29, 2002
|              |  |                                               |  |                
|Jami M. Phillips        |  |                                               |  |                

|33
|--

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

| | 3.1   |  | Restated
      Articles of Incorporation and Articles of Amendmentto 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                                                                                                 | (7 | )
| |       |  |                                                                                                                                    |    |  
| | 3.6   |  | Tenth
      Amendment to By-Laws                                                                                                   | (1 | )
| |       |  |                                                                                                                                    |    |  
| | 10.1  |  | Employment
      Agreement between Michael Collins and WinterSports, Inc.
      as of August 1, 1992.                              | (5 | )
| |       |  |                                                                                                                                    |    |  
| | 10.3  |  | Loan
      Agreement between Seattle-First National Bank andWinter Sports,
      Inc. dated November 14, 1994.                     | (6 | )
| |       |  |                                                                                                                                    |    |  
| | 10.5  |  | Employment
      Agreement between Michael Collins and WinterSports, Inc.
      as of August 1, 1996                               | (8 | )
| |       |  |                                                                                                                                    |    |  
| | 10.6  |  | Employment
      Agreement between Michele Reese and WinterSports, Inc. as of December 22, 1997                                    | (9 | )
| |       |  |                                                                                                                                    |    |  
| | 10.7  |  | Employment
      Agreement between Adora Maguire and WinterSports, Inc.
      as of May 1, 1998                                    | (7 | )
| |       |  |                                                                                                                                    |    |  
| | 10.8  |  | Employment
      Agreement between Michael Collins and WinterSports, Inc.
      as of September 1, 2000                            |    |  
| |       |  |                                                                                                                                    |    |  
| | 10.9  |  | Certification
      Pursuant to 18 U.S.C. Section 1350, as AdoptedPursuant to Section
      906 of the Sarbanes-Oxley Act of 2002. | (1 | )
| |       |  |                                                                                                                                    |    |  
| | 10.10 |  | Certification
      Pursuant to 18 U.S.C. Section 1350, as AdoptedPursuant to Section
      906 of the Sarbanes-Oxley Act of 2002. | (1 | )
| |       |  |                                                                                                                                    |    |  
| | 10.12 |  | Limited Liability Company Agreement                                                                                                | (1 | )
| |       |  |                                                                                                                                    |    |  
| | 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-KSB for the year ended May 31, 1998.
| |  | --- |  | -----------------------------------------------------------------------------------------

| |  | (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.
| |  | --- |  | ---------------------------------------------------------------------------------------------

|34
|--